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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, 2006**

**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**

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**DOCUMENTS      INCORPORATED BY REFERENCE**

**PART      I**

**ITEM      1. BUSINESS**

**Our      Company**

**Recent      Developments**

**Business      Segment Information**

**2006      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 and                military aircraft models, including Boeing, EADS, Lockheed and United                Technologies as well as the Canadair regional jet                series, |

| ·    | the                  largest supplier of friction materials for the growing general                  aviation                  market, including numerous new and existing series of Cessna, Hawker,                  Lear                  and Pilatus 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. |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Performance      Racing*

**Discontinued          Operations**

|                                                                   |   | **2006**  |     | **2005**  |   | **2004**  |   |
|------------------------------------------------------------------------|--------|----------------|----------|----------------|--------|----------------|--------|
|                                                                   |   |           |     |           |   |           |   |
| Net                        sales                                       |   | **$**          | **98.9** |           | $      | 92.5           |   | $ | 91.6 |   |
| Income                        from discontinued operations, net of tax |   | **$**          | **4.9**  |           | $      | 4.2            |   | $ | 3.5 |   |

**Business            Strategy **

| ·    | *Continued                      Product Innovation.*We                      believe that we are an industry leader in the development of                      systems,                      processes and technologies that enable us to manufacture 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. 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, 2006, we spent $4.1 million, or 1.9% of our net                      sales, on                      research and development compared to $4.2 million or 2.3% of                      our 2005 net                      sales for the year ended December 31, 2005.  |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *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. Our gross margins were                      22.6% for                      the year ended December 31, 2006 and 7.0% for the year ended                      December 31,                      2005. Our gross margins in 2006, and to a lesser extent in                      2005 were                      positively impacted by pricing actions that were taken during                      the last                      have of the year as well as strong market conditions in most                      of the                      markets that we serve. Our gross 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 total aftermarket sales of our friction products have                      comprised approximately 40% to 50% 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                      under our Velvetouch Fibertuff®  and                      Hawk Performance®                      brands, to fleets and retail customers. For the year ended                      December 31,                      2006 our direct aftermarket sales were $31.9 million, or 16.0%                      of our                      friction products sales, an increase of 18.7% from 2005.  |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *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 friction 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. We also market to domestic                Asian customers from our facility in China. Our international net                sales                represented $64.5 million, or 30.4%, of our consolidated net sales                for the                year ended December 31, 2006, and $55.0 million, or 30.2%, of our                consolidated net sales in 2005.  |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Our        Principal Markets and Products**

**2006            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, Allison and Volvo. We believe we are one                    of the                    largest suppliers 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 through relationships                with national automotive retailers such as Pep Boys and in the case                of                military sales, directly to the government of the United                States.  |

*Aerospace.      *

***Performance        Racing***

**Our              Business Segments **

|                                                              |   | **Year                        ended December 31** |      |
|-------------------------------------------------------------------|--------|---------------------------------------------------|-----------|
|                                                              |   | **2006**                                          |      | **2005** |   | **2004** |   |
|                                                              |   | (dollars                        in millions)      |      |
| Net                        sales to external customers:           |   |                                              |      |   |   |   |   |   |   |   |   |   |   |
| Friction                        products                          |   | **$**                                             | **199.9** |   |   | **94.3** | **%** | $ | 167.0 |   |   | 91.9 | % | $ | 148.3 |   |   | 91.2 | % |
| Performance                        racing                         |   |                                              | **12.1**  |   |   | **5.7** | **%** |   | 14.8 |   |   | 8.1 | % |   | 14.3 |   |   | 8.8 | % |
| Consolidated                                                      |   | **$**                                             | **212.0** |   |   | **100.0** | **%** | $ | 181.8 |   |   | 100.0 | % | $ | 162.6 |   |   | 100.0 | % |
|                                                              |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross                        profit:                              |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Friction                        products                          |   | **$**                                             | **45.6**  |   |   | **96.2** | **%** | $ | 33.6 |   |   | 91.8 | % | $ | 36.5 |   |   | 91.5 | % |
| Performance                        racing                         |   |                                              | **1.8**   |   |   | **3.8** | **%** |   | 3.0 |   |   | 8.2 | % |   | 3.4 |   |   | 8.5 | % |
| Consolidated                                                      |   | **$**                                             | **47.4**  |   |   | **100.0** | **%** | $ | 36.6 |   |   | 100.0 | % | $ | 39.9 |   |   | 100.0 | % |
|                                                              |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                        (loss) from operations              |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Friction                        products                          |   | **$**                                             | **16.3**  |   |   | **164.6** | **%** | $ | 3.2 |   |   | 133.3 | % | $ | 10.5 |   |   | 96.3 | % |
| Performance                        racing                         |   |                                              | **(6.4**  | **)** |   | **-64.6** | **%** |   | (0.8 | ) |   | -33.3 | % |   | 0.4 |   |   | 3.7 | % |
| Consolidated                                                      |   | **$**                                             | **9.9**   |   |   | **100.0** | **%** | $ | 2.4 |   |   | 100.0 | % | $ | 10.9 |   |   | 100.0 | % |
|                                                              |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted                        income (loss) from operations (1) |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Friction                        products                          |   | **$**                                             | **16.3**  |   |   | **113.2** | **%** | $ | 9.2 |   |   | 108.2 | % | $ | 12.3 |   |   | 96.1 | % |
| Performance                        racing                         |   |                                              | **(1.9**  | **)** |   | **-13.2** | **%** |   | (0.7 | ) |   | -8.2 | % |   | 0.5 |   |   | 3.9 | % |
| Consolidated                                                      |   | **$**                                             | **14.4**  |   |   | **100.0** | **%** | $ | 8.5 |   |   | 100.0 | % | $ | 12.8 |   |   | 100.0 | % |

|                                     |   | **December                  31** |                                    |
|------------------------------------------|--------|----------------------------------|-----------------------------------------|
|                                     |   | **2006**                         |                                    | **2005** |   |
| Total                  assets:           |   |                             | (dollars                  in thousands) |   |
| Friction                  products       |   | **$**                            | **134,378**                             |   | $ | 124,318 |   |
| Performance                  racing      |   |                             | **7,563**                               |   |   | 12,580 |   |
| Continuing                  operations   |   |                             | **141,941**                             |   |   | 136,898 |   |
| Discontinued                  operations |   |                             | **87,313**                              |   |   | 89,101 |   |
| Consolidated                             |   | **$**                            | **229,254**                             |   | $ | 225,999 |   |

| (1)   | 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** |     |
|------------------------------------------------------------------------------------|--------|---------------------------------------------|----------|
|                                                                               |   | **2006**                                    |     | **2005** |   | **2004** |   |
|                                                                               |   | (dollars                    in millions)    |     |
| Income                  from operations - Friction products:                       |   | **$**                                       | **16.3** |   | $ | 3.2 |   | $ | 10.5 |   |
| Restructuring                  costs                                               |   |                                        | **-**    |   |   | 5.5 |   |   | 1.1 |   |
| Employee                  benefit curtailment (income) expense                     |   |                                        | **-**    |   |   | (0.6 | ) |   | - |   |
| Loan                  forgiveness costs                                            |   |                                        | **-**    |   |   | 1.1 |   |   | 0.7 |   |
| Adjusted                  income from operations – Friction products         |   | **$**                                       | **16.3** |   | $ | 9.2 |   | $ | 12.3 |   |
|                                                                               |   |                                        |     |   |   |   |   |   |   |   |
| (Loss)                  income from operations - Performance racing:               |   | **$**                                       | **(6.4** | **)** | $ | (0.8 | ) | $ | 0.4 |   |
| Goodwill                  impairment                                               |   | **$**                                       | **4.5**  |   |   |   |   |   |   |   |
| Loan                  forgiveness costs                                            |   |                                        | **-**    |   |   | 0.1 |   |   | 0.1 |   |
| Adjusted                  (loss) income from operations – Performance racing |   | **$**                                       | **(1.9** | **)** | $ | (0.7 | ) | $ | 0.5 |   |

**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 metal powder alloy and                  other                  materials are compacted under pressure into a desired                  shape. |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *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. 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 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 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            have incurred losses from continuing operations in the past and may incur            losses            in future years.**

**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 cost savings projected at the time of the plant                      relocation.                     |

**We            have broad discretion over the use of proceeds from the sale of our precision            components segment.**

**Our      gross margins are subject to fluctuation      becuase of product mix.**

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

**Work          stoppages by union employees may          negatively impact 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  |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | 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.**

**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**   |
|----------------------------------------|----------------|----------------|
| **2006**                               |           |           |
| **December                31, 2006**   | **$****15.68** | **$****11.37** |
| **September                30, 2006**  | **$****12.90** | **$****11.95** |
| **June                30, 2006**       | **$****15.20** | **$****10.27** |
| **March                31, 2006**      | **$****15.40** | **$****12.97** |
| **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          |

**Performance        Graph**

**ITEM      6. **
**SELECTED      FINANCIAL DATA **

| **Years                  ended December 31**                                                                        |   | **2006**                                              |          | **2005** |   | **2004** |   | **2003** |   | **2002** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|---------------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                                                                                                |   | (in                  millions, except per share data) |          |
| **Statement                  of Operations Data:**                                                                  |   |                                                  |          |     |   |     |   |     |   |     |   |   |   |   |   |   |
| Net                  sales                                                                                          |   | **$**                                                 | **212.1**     |     | $      | 181.9    |   | $        | 162.6  |     | $      | 134.4 |   | $ | 118.8 |   |
| Gross                  profit                                                                                       |   |                                                  | **47.4**      |     |   | 36.7     |   |     | 39.9   |     |   | 32.9 |   |   | 29.1 |   |
| Goodwill                  Impairment (1)                                                                            |   |                                                  | **4.5**       |     |   | -        |   |     | -      |     |   | - |   |   | - |   |
| Restructuring                  costs (2)                                                                            |   |                                                  | **-**         |     |   | 5.5      |   |     | 1.1    |     |   | - |   |   | - |   |
| Employee                  benefit curtailment (income) expense (3) (4)                                              |   |                                                  | **-**         |     |   | (0.4     | )      |     | -      |     |   | 1.9 |   |   | - |   |
| Income                  from operations                                                                             |   |                                                  | **9.9**       |     |   | 2.4      |   |     | 11.0   |     |   | 5.8 |   |   | 6.5 |   |
| Adjusted                  income from operations (5)                                                                |   |                                                  | **14.4**      |     |   | 8.5      |   |     | 12.8   |     |   | 7.7 |   |   | 6.5 |   |
| (Loss)                  income from continuing operations before income taxes                                       |   |                                                  | **(2.0**      | **)**    |   | (5.6     | )      |     | (2.4   | )        |   | (3.6 | ) |   | (3.1 | ) |
| Discontinued                  operations, net of tax                                                                |   |                                                  | **5.0**       |     |   | 4.3      |   |     | 3.5    |     |   | (1.8 | ) |   | 2.0 |   |
| Cumulative                  effect of change in accounting principle, net of tax                  (6)               |   |                                                  | **-**         |     |   | -        |   |     | -      |     |   | - |   |   | (17.2 | ) |
| Net                  income (loss)                                                                                  |   | **$**                                                 | **3.0**       |     | $      | (1.3     | )      | $        | 1.1    |     | $      | (5.4 | ) | $ | (18.3 | ) |
| **Earnings                  (Loss) Per Share:**                                                                     |   |                                                  |          |     |   |     |   |     |   |     |   |   |   |   |   |   |
| Basic                  earnings (loss) per share                                                                    |   | **$**                                                 | **0.31**      |     | $      | (0.17    | )      | $        | 0.11   |     | $      | (0.65 | ) | $ | (2.15 | ) |
| Diluted                  earnings (loss) per share                                                                  |   | **$**                                                 | **0.30**      |     | $      | (0.17    | )      | $        | 0.11   |     | $      | (0.65 | ) | $ | (2.14 | ) |
| **Other                  Data:**                                                                                    |   |                                                  |          |     |   |     |   |     |   |     |   |   |   |   |   |   |
| Depreciation                                                                                                        |   | **$**                                                 | **6.8**       |     | $      | 6.5      |   | $        | 6.3    |     | $      | 6.6 |   | $ | 6.8 |   |
| Amortization                  (7)                                                                                   |   |                                                  | **0.5**       |     |   | 0.7      |   |     | 0.7    |     |   | 0.8 |   |   | 0.7 |   |
| Capital                  expenditures (including capital leases and financed capital                  expenditures) |   |                                                  | **8.1 ** |     |   | 7.8      |   |     | 9.3    |     |   |  5.4 |   |   | 6.3 |   |

| **December                  31**                               |   | **2006**                       |      | **2005** |   | **2004**   |   | **2003** |       | **2002** |   |
|----------------------------------------------------------------|--------|--------------------------------|-----------|----------|--------|------------|--------|----------|------------|----------|--------|
|                                                           |   | (In                  millions) |      |
| **Balance                  Sheet Data:**                       |   |                           |      |     |   |       |   |     |       |     |   |   |   |   |   |   |
| Cash                  and cash equivalents                     |   | **$**                          | **6.2**   |     | $      | 6.8        |   | $        | 5.9        |     | $      | 3.2 |   | $ | 1.4 |   |
| Working                  capital (8)                           |   |                           | **116.8** |     |   | 51.8  |   |     | 51.1  |     |   | 12.9  |   |   | 9.1  |   |
| Property                  plant and equipment, net             |   |                           | **39.4**  |     |   | 37.5       |   |     | 39.0       |     |   | 36.9 |   |   | 38.0 |   |
| Assets                  of discontinued operations             |   |                           | **87.3**  |     |   | 89.1       |   |     | 85.1       |     |   | 78.5 |   |   | 81.5 |   |
| Total                  assets                                  |   |                           | **229.3** |     |   | 226.0      |   |     | 219.8      |     |   | 193.5 |   |   | 192.9 |   |
| Liabilities                  of discontinued operations        |   |                           | **12.8**  |     |   | 15.2       |   |     | 15.9       |     |   | 14.6 |   |   | 13.6 |   |
| Total                  indebtedness (including capital leases) |   |                           | **111.2** |     |   | 116.7      |   |     | 112.0      |     |   | 93.1 |   |   | 105.6 |   |
| Shareholders’                  equity                    |   |                           | **46.7**  |     |   | 40.7       |   |     | 45.0       |     |   | 41.7 |   |   | 44.8 |   |

**___________**

| (1)   | In                accordance with the provisions of SFAS No. 142 we performed our annual                analysis of goodwill impairment as of October 31, 2006 and determined                that                there was a full impairment of the goodwill of our performance racing                segment (see Note “2 - Significant Accounting Policies” to the                accompanying Consolidated Financial Statements of this Form                10-K). |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | 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). |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Reflects                a non-cash gain related to an employee benefit curtailment as a result                of                employment terminations at the Brook Park, Ohio friction segment                facility. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | In                2003, reflects a 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. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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 and discussion. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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 2006, $0.4 million in 2005, $0.4 million in 2004,                $0.8                million in 2003 and $0.6 million in 2002, which is included in interest                expense on the Consolidated Statements 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**

**NON-GAAP**
**            FINANCIAL MEASURE**

* *

**Outlook        for 2007**

**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 No. 142, *Goodwill                      and Other Intangible Assets*                      (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 any                      impairment loss identified 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 recorded an impairment charge of $4.5 million for the period                      ended                      December 31, 2006. As of December 31, 2006, we have no remaining                      goodwill                      in our continuing operations on our Consolidated Balance                      Sheet. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *Long-Lived                    Assets.*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 to our tangible                    or                    indefinite lived intangible assets in the periods ended December 31,                    2006, 2005, or 2004. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *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 would be 8.2% for 2007. 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). Net periodic benefit                  cost was                  $1.2 million for the period ended December 31, 2006 and $1.2 million                  for                  the period ended December 31, 2005. See Note “10 - Employee Benefits” in                  the accompanying unaudited Consolidated Financial Statements of                  this Form                  10-K for details regarding the action taken on one of our defined                  benefit                  plans as of May 31, 2006. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *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. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Accounting          for Income Taxes*

| ·   | *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                  gain of $2.1 million for the year ended December 31, 2006. 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 transaction.                  The effect of transaction gains or losses is 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 2006 and 2005. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *Recent                  Accounting Developments.* |
|--------------------|----------------------------------------------------|

| ·   | 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, SFAS 151 requires that the allocation of fixed production                      overheads to the costs of conversion be based on the normal                      capacity of                      the production facilities. We adopted SFAS 151 on January 1,                      2006 with no                      material impact to our financial statements.  |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In                    May 2005, the FASB issued SFAS No. 154, *Accounting                    Changes and Error Corrections*                    (SFAS 154). SFAS 154 replaces Accounting Principles Board Opinion                    No. 20,                    *Accounting                    Changes*,                    and FASB Statement No. 3, *Reporting                    Accounting Changes in Interim Financial Statements*,                    and changes the accounting for and reporting of a change in accounting                    principle. SFAS 154 applies to all voluntary changes in accounting                    principle and to changes required by an accounting pronouncement                    when                    specific transition provisions are not provided. SFAS 154 requires                    retrospective application to prior periods’ financial statements for                    changes in accounting principle, unless it is impracticable to                    determine                    the period specific or cumulative effects of the change. We must                    adopt                    SFAS 154 in fiscal 2007. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In                    September 2006, FASB issued SFAS No. 157*,                    Fair Value Measurements*                    (SFAS 157). * *                    SFAS No. 157 defines fair value, establishes a framework for                    measuring fair value in generally accepted accounting principles,                    and                    expands disclosures about fair value measurements. SFAS No. 157 does                    not require any new fair value measurements, rather it applies                    whenever                    existing accounting pronouncements require or permit fair value                    measurements. SFAS No. 157 is effective for fiscal years beginning                    after November 15, 2007. We are currently evaluating the impact of                    SFAS No. 157 on our financial statements and will adopt SFAS 157 as                    required. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In                      September 2006, FASB issued SFAS No. 158, *Employers’                      Accounting for Defined Benefit Pension and Other Postretirement                      Plans, an                      amendment of FASB Statements No 87, 88, 106 and 132(R)*(SFAS                      158)*.*SFAS                      158 requires the recognition of the overfunded or underfunded                      status of a                      defined benefit postretirement plan as an asset or liability                      in the                      statement of financial position and the recognition of changes                      in that                      funded status in the year in which the changes occur through                      comprehensive                      income. SFAS 158 also requires the measurement of the funded                      status of a                      plan as of the date of the year-end statement of financial                      position. As                      a result of the adoption of SFAS 158 at December 31, 2006,                      we recorded a                      non-cash charge in Accumulated other comprehensive loss in                      Shareholders’                      equity of $2,971 ($1,831 after tax) for pension benefits as                      a one-time                      adjustment to initially apply the new Standard. Pension funding                      requirements are not affected by the recording of this                      charge. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On                    February 15, 2007, the FASB issued SFAS No. 159, *The                    Fair Value Option for Financial Assets and Financial Liabilities:                    Including an amendment of FASB Statement No. 115*                    (SFAS 159). SFAS 159 permits all entities to elect to measure                    many                    financial instruments and certain other items at fair value with                    changes                    in fair value reported in earnings. SFAS 159 is effective as                    of the                    beginning of the first fiscal year that begins after November                    15, 2007,                    with earlier adoption permitted for.                    We are currently evaluating SFAS 159 and will adopt as                    required. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In                  September 2006, the Securities and Exchange Commission (SEC) issued                  Staff Accounting Bulletin No. 108, *Considering                  the Effects of Prior Year Misstatements in Current Year Financial                  Statements*(SAB                  108). SAB 108 provides guidance on quantifying financial statement                  misstatements, including the effects of prior year errors on current                  year                  financial statements. SAB 108 is effective for periods ending after                  November 15, 2006.  We adopted SAB 108 as of December 31, 2006 with                  no material impact to                  our financial statements.  |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | In                  June 2006, FASB issued Financial Interpretation No. 48,                  *Accounting                  for Uncertainty in Income Taxes - an amendment of FASB Statement                  No. 109*(FIN                  48). FIN 48 clarifies the accounting for uncertainty in income                  taxes by                  defining a criterion that an individual tax position must meet                  for any                  part of the benefit of that position to be recognized in an enterprise’s                  financial statements. Additionally, FIN 48 provides guidance on                  measurement, derecognition, classification, interest and penalties,                  accounting in interim periods, disclosure, and transition. FIN                  48 is                  effective for us as of January 1, 2007. We                  do not expect the interpretation to have a material impact on our                  results                  from operations or financial                  position. |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In                  March 2006, FASB issued SFAS No. 156, *Accounting                  for Servicing of Financial Assets — an amendment of FASB Statement                  No. 140*                  (SFAS 156). SFAS 156 establishes the accounting for all separately                  recognized servicing assets and servicing liabilities. SFAS 156                  amends                  SFAS 140 to require that all separately recognized servicing assets                  and servicing liabilities be initially measured at fair value,                  if                  practicable. This statement is effective in 2007. We are evaluating                  SFAS                  156, however we do not expect adoption of SFAS 156 to have a material                  impact on our consolidated financial                  statements. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On                    February 16, 2006, FASB issued SFAS No. 155, *Accounting                    for Certain Hybrid Instruments*                    (SFAS 155), which amends SFAS No. 133, *Accounting                    for Derivative Instruments and Hedging Activities*                    (SFAS 133) and SFAS No. 140, *Accounting                    for Transfers and Servicing of Financial Assets and Extinguishment                    of                    Liabilities*                    (SFAS 140). SFAS 155 allows financial instruments that have embedded                    derivatives to be accounted for as a whole (eliminating the need                    to                    bifurcate the derivative from its host) if the holder elects                    to account                    for the instrument on a fair value basis. SFAS 155 also clarifies                    and                    amends certain other provisions of SFAS 133 and SFAS 140. This                    statement                    is effective for all financial instruments acquired or issued                    in fiscal                    years beginning after September 15, 2006. We are evaluating SFAS 155,                    however we do not expect adoption of SFAS 155 to have a material                    impact on                    our consolidated financial statements. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 September 21, 2005, the SEC published a ruling extending                    for                    one year the compliance dates for non-accelerated filers to report                    on                    internal control over financial reporting. For these issuers,                    including                    the Company, Section 404 will be effective for fiscal years ending                    on or                    after July 15, 2007.  On August 9, 2006, the SEC published a new rule                    that would extend the compliance date for the report on management's                    assessment of the effectiveness of internal control over financial                    reporting until fiscal years ending on or after December 15,                    2007 for                    non-accelerated filers.  The rule would also extend the                    non-accelerated filer compliance date for the auditor attestation                    report                    on internal control over financial reporting until fiscal years                    ending on                    or after December 15, 2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Year            Ended December 31, 2006 Compared to Year Ended December 31,            2005**

*Net            Sales. *

|                                      |   | **Year                    Ended December 31**  |      |
|-------------------------------------------|--------|------------------------------------------------|-----------|
| **Net                    Segment Sales:** |   | **2006**                                       |      | **2005** |   | **$                    Change** |   | **%                    Change** |   |
|                                      |   | (dollars                    in millions)  |      |
| Friction                    products      |   | **$**                                          | **199.9** |   | $ | 167.1 |   | $ | 32.8 |   |   | 19.6 | % |
| Performance                    racing     |   |                                           | **12.1**  |   |   | 14.8 |   |   | (2.7 | ) |   | -18.2 | % |
| Consolidated                              |   | **$**                                          | **212.0** |   | $ | 181.9 |   | $ | 30.1 |   |   | 16.5 | % |

| ·    | *Friction                  Products.*Net                  sales in the friction products segment, our largest, were $199.9                  million                  in 2006, an increase of $32.8 million, or 19.6%, compared to $167.1                  million in 2005. As a result of pricing actions, general economic                  expansion, new product introductions and market share gains, we                  experienced increases in most of our major markets, including construction                  and mining, aerospace, heavy truck and performance automotive.                  This                  segment continued to experience strong sales growth from our international                  operations in 2006. Our sales to the construction and mining, our                  largest                  end market, were up 35.9% in 2006 compared to 2005, 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 9.6% in 2006                  compared to                  2005 as our customers supported the continued growth in new truck                  builds                  and aftermarket service requirements to existing truck fleets during                  the                  year as well. The higher than normal market strength in the truck                  market                  in 2006 was due to the implementation of new truck emission standards                  in                  2007 and customer purchases of trucks in advance of the new standards.                  Our                  sales to the aerospace market were up 20.2% in 2006 compared to                  2005 as a                  result of pricing actions and world-wide commercial air travel                  continued                  its positive growth trend. Our sales to the agriculture market                  increased                  1.0% during the year as a result of improving farm economies in                  the                  European markets. During 2006, 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                  18.7% to $31.9 million in 2006 compared to 2005.  |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·    | *Performance                        Racing.*Net                        sales in our performance racing segment were $12.1 million,                        a decrease of                        18.2% compared to net sales of $14.8 million in 2005. The                        decrease in                        revenues was primarily attributable to a realignment of the                        segment’s                        strategic customer focus at our driveline transmission facility.                        At the                        end of 2005, we made a significant change in the management                        of our                        driveline business operations, and began repositioning it                        in the                        marketplace by increasing the level of engineering and product                        design                        capabilities while aligning it with a new provider of premium                        gears for                        the racing market. These measures were taken to meet increased                        competition                        in the transmission market. |
|--------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Gross            Profit. *

|                                            |   | **Year                        Ended December 31** |   |
|-------------------------------------------------|--------|---------------------------------------------------|--------|
| **Gross                        Profit Margin:** |   | **2006**                                          |   | **2005** |   | **Change** |   |
| Friction                        products        |   |                                              | 22.8   | % |   | 20.2 | % |   | 2.6 | % |
| Performance                        racing       |   |                                              | 14.9   | % |   | 20.3 | % |   | -5.4 | % |
| Consolidated                                    |   |                                              | 22.4   | % |   | 20.2 | % |   | 2.2 | % |

| ·    | *Friction                        Products.*Our                        friction products segment reported gross profit of $45.6                        million or 22.8%                        of its net sales in 2006 compared to $33.7 million or 20.2%                        of its net                        sales in 2005. The 12.9% increase in our gross profit margin                        was primarily                        the result of pricing actions taken, increased production                        flow from our                        facility in Tulsa, improved control of manufacturing expenses                        as the Tulsa                        facility benefited from improved manufacturing efficiencies                        and margin                        improvements from volume related absorption of fixed overhead.                        The                        increase was partially offset by expenses incurred at our                        new Tulsa                        facility, including logistic and scrap expenses, increased                        raw material                        costs, and increased medical and incentive compensation expenses                        during                        the period.  |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *Performance                        Racing.*Our                        performance racing segment reported gross profit of $1.8                        million in 2006                        compared to $3.0 million of its net sales in 2005. Our gross                        margin was                        14.9% of net sales in 2006 compared to 20.3% in 2005. The                        26.6% decrease                        in the gross margin was primarily the result of the reduced                        sales volumes                        in the quarter, increased inventory reserves and less favorable                        product                        mix.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

*Selling,            Technical and Administrative Expenses.*

*Goodwill            Impairment Charge.*

*Income        from Operations.*

|                                                                 |   | **Year                        ended December 31** |     |
|----------------------------------------------------------------------|--------|---------------------------------------------------|----------|
| **Income                        (loss) from operations by segment:** |   | **2006**                                          |     | **2005** |   | **$                        Change** |   |
|                                                                 |   | (dollars                        in millions)      |     |
| Friction                        products                             |   | **$**                                             | **16.3** |   | $ | 3.2 |   | $ | 13.1 |   |
| Performance                        racing                            |   |                                              | **(6.4** | **)** |   | (0.8 | ) |   | (5.6 | ) |
| Consolidated                                                         |   | **$**                                             | **9.9**  |   | $ | 2.4 |   | $ | 7.5 |   |

|                                      |   | **Year                        ended December 31**                                |     |
|-------------------------------------------|--------|----------------------------------------------------------------------------------|----------|
|                                      |   |  **Income                      (loss) from operations, as reported (GAAP)** |     | **Restructuring                        costs****(1)** |   | **Other                        (income)costs, net****(2)** |   | **Adjusted                        income (loss) from                        operations** |   |
|                                      |   | **2006**                                                                         |     | **2005** |   | **2006** |   | **2005** |   | **2006** |   | **2005** |   | **2006** |   | **2005** |   |
|                                      |   | (dollars                        in millions)                                     |     |
| Friction                        products  |   | **$**                                                                            | **16.3** |   | $ | 3.2 |   | **$** | **-** |   | $ | 5.5 |   | **$** | **-** |   | $ | 0.6 |   | **$** | **16.3** |   | $ | 9.3 |   |
| Performance                        racing |   |                                                                             | **(6.4** | **)** |   | (0.8 | ) |   | **-** |   |   | - |   |   | **4.5** |   |   | 0.1 |   |   | **(1.9** | **)** |   | (0.7 | ) |
| Total                                     |   | **$**                                                                            | **9.9**  |   | $ | 2.4 |   | **$** | **-** |   | $ | 5.5 |   | **$** | **4.5** |   | $ | 0.7 |   | **$** | **14.4** |   | $ | 8.6 |   |
|                                      |   |                                                                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                        margin   |   |                                                                             | **4.7**  | **%** |   | 1.3 | % |   |   |   |   |   |   |   |   |   |   |   |   |   | **6.8** | **%** |   | 4.7 | % |

| (1) * * | Restructuring                      costs in this table for the period ended December 31, 2005                      include $0.5                      million classified in our Consolidated Statements of Operations                      as cost of                      sales items. |
|-------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) * * | Other                      costs, net includes a goodwill impairment charge of $4.5 million                      for the                      year ended December 31, 2006 and loan forgiveness costs of                      $1.1 million,                      net of employee benefit curtailment income of $0.4 million                      for the year                      ended December 31, 2005. |
|-------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Interest            Expense.*

*Income            Taxes.*

*Discontinued            Operations, net of tax. *

|                                                                       |   | **Year                            ended December 31** |     |
|----------------------------------------------------------------------------|--------|-------------------------------------------------------|----------|
|                                                                       |   | **2006**                                              |     | **2005** |   |
|                                                                       |   | (dollars                            in millions)      |     |
| Net                            sales                                       |   | **$**                                                 | **98.9** |   | $ | 92.5 |   |
|                                                                       |   |                                                  |     |   |   |   |   |
| Income                            from discontinued operations, net of tax |   | **$**                                                 | **4.9**  |   | $ | 4.2 |   |

*Net            Income (Loss).*

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

*Net            Sales. *

|                                          |   | **Year                        ended December 31** |      |
|-----------------------------------------------|--------|---------------------------------------------------|-----------|
| **Net                        Segment Sales:** |   | **2005**                                          |      | **2004** |   | **$                        Change** |   | **%                        Change** |   |
|                                          |   | (dollars                        in millions)      |      |
| Friction                        products      |   | **$**                                             | **167.1** |   | $ | 148.3 |   | $ | 18.8 |   |   | 12.7 | % |
| Performance                        racing     |   |                                              | **14.8**  |   |   | 14.3 |   |   | 0.5 |   |   | 3.5 | % |
| Consolidated                                  |   | **$**                                             | **181.9** |   | $ | 162.6 |   | $ | 19.3 |   |   | 11.9 | % |

| ·    | *Friction                    Products.*Net                    sales in the friction products segment, our largest, were $167.1                    million                    in 2005, an increase of $18.8 million, or 12.7%, 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. 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 4.7% to                    $26.8 million in 2005 compared to 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. *

|                                            |   | **Year                        ended December 31** |     |
|-------------------------------------------------|--------|---------------------------------------------------|----------|
| **Gross                        Profit Margin:** |   | **2005**                                          |     | **2004** |   | **Change** |   |
| Friction                        products        |   |                                              | **20.2** | **%** |   | 24.6 | % |   | -4.4 | % |
| Performance                        racing       |   |                                              | **20.3** | **%** |   | 23.8 | % |   | -3.5 | % |
| Consolidated                                    |   |                                              | **20.2** | **%** |   | 24.5 | % |   | -4.3 | % |

| ·    | *Friction                      Products.*Our                      friction products segment reported gross profit of $33.7 million                      or 20.2%                      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.  |
|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | *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.*

|                                                               |   | **Year                      ended December 31** |     |
|--------------------------------------------------------------------|--------|-------------------------------------------------|----------|
| **Income                      (loss) from operations by segment:** |   | **2005**                                        |     | **2004** |   | **$                      Change** |   |
|                                                               |   | (dollars                      in millions)      |     |
| Friction                      products                             |   | **$**                                           | **3.2**  |   | $ | 10.5 |   | $ | (7.3 | ) |
| Performance                      racing                            |   |                                            | **(0.8** | **)** |   | 0.5 |   |   | (1.3 | ) |
| Consolidated                                                       |   | **$**                                           | **2.4**  |   | $ | 11.0 |   | $ | (8.6 | ) |

|                                      |   | **Year                        ended December 31**                            |     |
|-------------------------------------------|--------|------------------------------------------------------------------------------|----------|
|                                      |   | **Income                        (loss) from operations, as reported (GAAP)** |     | **Restructuring                        costs****(1)** |   | **Other costs,                        net****(2)** |   | A**djusted                        income (loss) from operations** |   |
|                                      |   | **2005**                                                                     |     | **2004** |   | **2005** |   | **2004** |   | **2005** |   | **2004** |   | **2005** |   | **2004** |   |
|                                      |   | (dollars                        in millions)                                 |     |
| Friction                        products  |   | **$**                                                                        | **3.2**  |   | $ | 10.5 |   | **$** | **5.5** |   | $ | 1.1 |   | **$** | **0.6** |   | $ | 0.7 |   | **$** | **9.3** |   | $ | 12.3 |   |
| Performance                        racing |   |                                                                         | **(0.8** | **)** |   | 0.5 |   |   | **-** |   |   | - |   |   | **0.1** |   |   | - |   |   | **(0.7** | **)** |   | 0.5 |   |
| Total                                     |   | **$**                                                                        | **2.4**  |   | $ | 11.0 |   | **$** | **5.5** |   | $ | 1.1 |   | **$** | **0.7** |   | $ | 0.7 |   | **$** | **8.6** |   | $ | 12.8 |   |
|                                      |   |                                                                         |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                        margin   |   |                                                                         | **1.3**  | **%** |   | 6.8 | % |   |   |   |   |   |   |   |   |   |   |   |   |   | **6.8** | **%** |   | 7.7 | % |

| (1)*  * | Restructuring                          costs in this table for the period ended December 31, 2005                          include $0.5                          million classified in our Consolidated Statement of Operations                          as cost of                          sales items. |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)*  * | Other                          costs, net includes loan forgiveness costs of $1.1 million                          for the year                          ended December 31, 2005 and $0.7 million for the year ended                          December 31,                          2004, net of employee benefit curtailment income of $0.4                          million for the                          year ended December 31, 2005. |
|-------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Interest                Expense.*

*Income                Taxes.*

*Discontinued        Operations, net of tax. *

|                                                               |   | **Year                    ended December 31** |     |
|--------------------------------------------------------------------|--------|-----------------------------------------------|----------|
|                                                               |   | **2005**                                      |     | **2004** |   |
|                                                               |   | (dollars                    in millions)      |     |
| Net                    sales                                       |   | **$**                                         | **92.5** |   | $ | 91.6 |   |
|                                                               |   |                                          |     |   |   |   |   |
| Income                    from discontinued operations, net of tax |   | **$**                                         | **4.2**  |   | $ | 3.5 |   |

*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**       |                                   |
|----------------------------------------------------------------------------|--------|----------------------------------------------|----------------------------------------|
|                                                                       |   | **2006**                                     |                                   | **2005** |   |
|                                                                       |   | (dollars                        in millions) |                                   |
| Cash                        and cash equivalents                           |   | **$**                                        | **6.2**                                |   | $ | 6.8 |   |
| Working                        capital (1)                                 |   | **$**                                        | **116.8**                              |   | $ | 51.8 |   |
| Current                        ratio (2)                                   |   |                                         | **3.04                        to 1.0** |   |   | 1.97                        to 1.0 |   |
| Net                        debt as a % of capitalization (3)               |   |                                         | **69.2**                               | **%** |   | 73.0 | % |
| Average                        number of days sales in accounts receivable |   |                                         | **59                        days**     |   |   | 46                        days |   |
| Average                        number of days sales in inventory           |   |                                         | **86                        days**     |   |   | 93                        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**       |      |
|----------------------------------------|--------|----------------------------------------------|-----------|
|                                   |   | **2006**                                     |      | **2005** |   |
|                                   |   | (dollars                        in millions) |      |
| Short-term                        debt |   | **$**                                        | **1.0**   |   | $ | 1.4 |   |
| Senior                        notes    |   |                                         | **110.0** |   |   | 110.0 |   |
| Bank                        facility   |   |                                         | **-**     |   |   | 5.0 |   |
| Other                                  |   |                                         | **0.2**   |   |   | 0.3 |   |
| Total                        debt      |   | **$**                                        | **111.2** |   | $ | 116.7 |   |

**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** |     |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|----------|
|                                                                                                                   |   | **2006**                                          |     | **2005** |   |
|                                                                                                                   |   | (dollars                        in millions)      |     |
| Cash                        provided by operating activities of continuing operations                                  |   | **$**                                             | **5.5**  |   | $ | 4.2 |   |
| Cash                        used in investing activities of continuing operations                                      |   |                                              | **(6.4** | **)** |   | (7.7 | ) |
| Cash                        (used in) provided by financing activities of continuing                        operations |   |                                              | **(5.1** | **)** |   | 5.3 |   |
| Effect                        of exchange rates on cash                                                                |   |                                              | **0.5**  |   |   | (0.5 | ) |
| Cash                        provided by (used in) discontinued operations                                              |   |                                              | **4.9**  |   |   | (0.4 | ) |
| Net                        (decrease) increase in cash and cash equivalents                                            |   | **$**                                             | **(0.6** | **)** | $ | 0.9 |   |

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

*Market            Risk Disclosures.*

*Interest            Rate Sensitivity.*

| (Dollars                        in Thousands)        |   | **Total** |    | **2007** |   | **2008                        – 2011** |   | **Thereafter** |   |
|------------------------------------------------------|--------|-----------|---------|----------|--------|----------------------------------------------|--------|----------------|--------|
| Contractual                        obligations (1):  |   |      |    |     |   |                                         |   |           |   |   |   |   |   |
| Short-term                        debt (2)           |   | $         | 980     |     | $      | 980                                          |   | $              | -      |   | $ | - |   |
| Bank                        Facility (2)             |   |      | -       |     |   | -                                            |   |           | -      |   |   | - |   |
| Senior                        Notes (3)              |   |      | 110,000 |     |   | -                                            |   |           | -      |   |   | 110,000 |   |
| Capital                        Leases                |   |      | 180     |     |   | 127                                          |   |           | 53     |   |   | 0 |   |
| Operating                        leases              |   |      | 29,560  |     |   | 3,070                                        |   |           | 10,517 |   |   | 15,973 |   |
| Purchase                        obligations (4)      |   |      | 30,815  |     |   | 26,596                                       |   |           | 3,419  |   |   | 800 |   |
| Total                        contractual obligations |   | $         | 171,535 |     | $      | 30,773                                       |   | $              | 13,989 |   | $ | 126,773 |   |
| Other                        commercial commitments: |   |      |    |     |   |                                         |   |           |   |   |   |   |   |
| Stand-by                        letters of credit    |   | $         | 2,194   |     | $      | 2,194                                        |   |           |   |   |   |   |   |

| (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 “10 — 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 **

**December        31, 2006, 2005 and 2004**

**Audited        Consolidated Financial Statements**

| Report                  of Ernst & Young LLP, Independent Registered Public Accounting                  Firm  |   |
|------------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated                  Balance Sheets                                                                      |   |
| Consolidated                  Statements of Operations                                                            |   |
| Consolidated                  Statements of Shareholders’ Equity                                            |   |
| Consolidated                  Statements of Cash Flows                                                            |   |
| Notes                  to Consolidated Financial Statements                                                            |   |

**REPORT          OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING          FIRM**

**HAWK        CORPORATION**

**CONSOLIDATED        BALANCE SHEETS**

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

|                                                                                                         |   | **December                    31** |        |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------|-------------|
|                                                                                                         |   | **2006**                           |        | **2005** |   |
| **Assets**                                                                                                   |   |                               |        |   |   |   |   |
| Current                    assets:                                                                           |   |                               |        |   |   |   |   |
| Cash                    and cash equivalents                                                                 |   | **$**                              | **6,177**   |   | $ | 6,761 |   |
| Accounts                    receivable, less allowance of $1,052 in 2006 and $676 in                    2005 |   |                               | **34,502**  |   |   | 22,969 |   |
| Inventories:                                                                                                 |   |                               |        |   |   |   |   |
| Raw                    materials                                                                             |   |                               | **14,180**  |   |   | 12,244 |   |
| Work-in-process                                                                                              |   |                               | **13,599**  |   |   | 12,556 |   |
| Finished                    products                                                                         |   |                               | **11,111**  |   |   | 12,320 |   |
| Total                    inventories                                                                         |   |                               | **38,890**  |   |   | 37,120 |   |
| Deferred                    income taxes                                                                     |   |                               | **2,472**   |   |   | 4,430 |   |
| Other                    current assets                                                                      |   |                               | **4,607**   |   |   | 4,712 |   |
| Assets                    held for sale                                                                      |   |                               | **-**       |   |   | 1,644 |   |
| Current                    assets of discontinued operations                                                 |   |                               | **87,313**  |   |   | 27,564 |   |
| Total                    current assets                                                                      |   |                               | **173,961** |   |   | 105,200 |   |
|                                                                                                         |   |                               |        |   |   |   |   |
| Property,                    plant and equipment:                                                            |   |                               |        |   |   |   |   |
| Land                    and improvements                                                                     |   |                               | **510**     |   |   | 504 |   |
| Buildings                    and improvements                                                                |   |                               | **14,406**  |   |   | 13,025 |   |
| Machinery                    and equipment                                                                   |   |                               | **81,397**  |   |   | 74,273 |   |
| Furniture                    and fixtures                                                                    |   |                               | **8,087**   |   |   | 7,331 |   |
| Construction                    in progress                                                                  |   |                               | **2,846**   |   |   | 3,463 |   |
|                                                                                                         |   |                               | **107,246** |   |   | 98,596 |   |
| Less                    accumulated depreciation                                                             |   |                               | **67,837**  |   |   | 61,122 |   |
| Total                    property, plant and equipment                                                       |   |                               | **39,409**  |   |   | 37,474 |   |
|                                                                                                         |   |                               |        |   |   |   |   |
| Other                    assets:                                                                             |   |                               |        |   |   |   |   |
| Goodwill                                                                                                     |   |                               | **-**       |   |   | 4,465 |   |
| Finite-lived                    intangible assets                                                            |   |                               | **7,884**   |   |   | 8,379 |   |
| Deferred                    income taxes                                                                     |   |                               | **3,357**   |   |   | 916 |   |
| Other                                                                                                        |   |                               | **4,643**   |   |   | 8,028 |   |
| Long-term                    assets of discontinued operations                                               |   |                               | **-**       |   |   | 61,537 |   |
| Total                    other assets                                                                        |   |                               | **15,884**  |   |   | 83,325 |   |
| Total                    assets                                                                              |   | **$**                              | **229,254** |   | $ | 225,999 |   |

|                                                                                                                                                                                                                                                                                                            |   | **December                    31** |        |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|-------------|
|                                                                                                                                                                                                                                                                                                            |   | **2006**                           |        | **2005** |   |
|                                                                                                                                                                                                                                                                                                            |   |                               |        |   |   |   |   |
| **Liabilities                    and shareholders' equity**                                                                                                                                                                                                                                                     |   |                               |        |   |   |   |   |
| Current                    liabilities:                                                                                                                                                                                                                                                                         |   |                               |        |   |   |   |   |
| Accounts                    payable                                                                                                                                                                                                                                                                             |   | **$**                              | **23,023**  |   | $ | 22,160 |   |
| Accrued                    compensation                                                                                                                                                                                                                                                                         |   |                               | **6,678**   |   |   | 4,458 |   |
| Accrued                    interest                                                                                                                                                                                                                                                                             |   |                               | **4,857**   |   |   | 4,895 |   |
| Accrued                    taxes                                                                                                                                                                                                                                                                                |   |                               | **2,558**   |   |   | 642 |   |
| Other                    accrued expenses                                                                                                                                                                                                                                                                       |   |                               | **6,176**   |   |   | 5,267 |   |
| Short-term                    debt                                                                                                                                                                                                                                                                              |   |                               | **980**     |   |   | 1,362 |   |
| Current                    portion of long-term debt                                                                                                                                                                                                                                                            |   |                               | **127**     |   |   | 142 |   |
| Current                    liabilities of discontinued operations                                                                                                                                                                                                                                               |   |                               | **12,795**  |   |   | 14,501 |   |
| Total                    current liabilities                                                                                                                                                                                                                                                                    |   |                               | **57,194**  |   |   | 53,427 |   |
|                                                                                                                                                                                                                                                                                                            |   |                               |        |   |   |   |   |
| Long-term                    liabilities:                                                                                                                                                                                                                                                                       |   |                               |        |   |   |   |   |
| Long-term                    debt                                                                                                                                                                                                                                                                               |   |                               | **110,053** |   |   | 115,203 |   |
| Deferred                    income taxes                                                                                                                                                                                                                                                                        |   |                               | **1,025**   |   |   | 885 |   |
| Pension                    liabilities                                                                                                                                                                                                                                                                          |   |                               | **4,727**   |   |   | 10,522 |   |
| Other                    accrued expenses                                                                                                                                                                                                                                                                       |   |                               | **9,526**   |   |   | 4,510 |   |
| Long-term                    liabilities of discontinued operations                                                                                                                                                                                                                                             |   |                               | **-**       |   |   | 736 |   |
| Total                    long-term liabilities                                                                                                                                                                                                                                                                  |   |                               | **125,331** |   |   | 131,856 |   |
|                                                                                                                                                                                                                                                                                                            |   |                               |        |   |   |   |   |
| 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; 9,016,878 and 8,935,659 outstanding in 2006 and 2005,respectively                                                                                                                    |   |                               | **92**      |   |   | 92 |   |
| Class                    B common stock, $.01 par value; 10,000,000 shares authorized                    none                    issued                    or outstanding                                                                                                                                       |   |                               | **-**       |   |   | - |   |
| Additional                    paid-in capital                                                                                                                                                                                                                                                                   |   |                               | **53,492**  |   |   | 53,349 |   |
| Retained                    deficit                                                                                                                                                                                                                                                                             |   |                               | **(2,026**  | **)** |   | (4,845 | ) |
| Accumulated                    other comprehensive loss                                                                                                                                                                                                                                                         |   |                               | **(3,467**  | **)** |   | (5,986 | ) |
| Treasury                    stock, at cost, 170,872 and 252,091 shares in 2006 and 2005,respectively                                                                                                                                                                                                            |   |                               | **(1,363**  | **)** |   | (1,895 | ) |
| Total                    shareholders' equity                                                                                                                                                                                                                                                                   |   |                               | **46,729**  |   |   | 40,716 |   |
| Total                    liabilities and shareholders' equity                                                                                                                                                                                                                                                   |   | **$**                              | **229,254** |   | $ | 225,999 |   |

*See        notes to consolidated financial statements.*

**HAWK        CORPORATION**

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

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

|                                                                                                                                                           |   | **Year                    ended December 31** |        |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-------------|
|                                                                                                                                                           |   | **2006**                                      |        | **2005** |   | **2004** |   |
| Net                    sales                                                                                                                                   |   | **$**                                         | **212,050** |   | $ | 181,858 |   | $ | 162,559 |   |
| Cost                    of sales                                                                                                                               |   |                                          | **164,663** |   |   | 145,197 |   |   | 122,655 |   |
| Gross                    profit                                                                                                                                |   |                                          | **47,387**  |   |   | 36,661 |   |   | 39,904 |   |
|                                                                                                                                                           |   |                                          |        |   |   |   |   |   |   |   |
| Operating                    expenses:                                                                                                                         |   |                                          |        |   |   |   |   |   |   |   |
| Selling,                    technical and administrative expenses                                                                                              |   |                                          | **32,526**  |   |   | 28,952 |   |   | 27,098 |   |
| Goodwill                    Impairment                                                                                                                         |   |                                          | **4,465**   |   |   | - |   |   | - |   |
| Restructuring                    costs                                                                                                                         |   |                                          | **-**       |   |   | 4,962 |   |   | 1,117 |   |
| Employee                    benefit curtailment                                                                                                                |   |                                          | **-**       |   |   | (424 | ) |   | - |   |
| Amortization                    of finite-lived intangible assets                                                                                              |   |                                          | **495**     |   |   | 724 |   |   | 724 |   |
| Total                    operating expenses                                                                                                                    |   |                                          | **37,486**  |   |   | 34,214 |   |   | 28,939 |   |
| Income                    from operations                                                                                                                      |   |                                          | **9,901**   |   |   | 2,447 |   |   | 10,965 |   |
|                                                                                                                                                           |   |                                          |        |   |   |   |   |   |   |   |
| Interest                    expense                                                                                                                            |   |                                          | **(11,182** | **)** |   | (10,562 | ) |   | (10,219 | ) |
| Interest                    income                                                                                                                             |   |                                          | **98**      |   |   | 40 |   |   | 54 |   |
| Exchange                    offer costs                                                                                                                        |   |                                          | **-**       |   |   | - |   |   | (2,431 | ) |
| Other                    income (expense), net                                                                                                                 |   |                                          | **106**     |   |   | 100 |   |   | (244 | ) |
| Loss                    from continuing operations, before income taxes                                                                                        |   |                                          | **(1,077**  | **)** |   | (7,975 | ) |   | (1,875 | ) |
|                                                                                                                                                           |   |                                          |        |   |   |   |   |   |   |   |
| Income                    tax provision (benefit)                                                                                                              |   |                                          | **897**     |   |   | (2,391 | ) |   | 477 |   |
|                                                                                                                                                           |   |                                          |        |   |   |   |   |   |   |   |
| Loss                    from continuing operations, after income taxes                                                                                         |   |                                          | **(1,974**  | **)** |   | (5,584 | ) |   | (2,352 | ) |
| Income                    from discontinued operations, net of tax of $3,698 in 2006, $2,609                    in                    2005, and $2,236 in 2004 |   |                                          | **4,943**   |   |   | 4,240 |   |   | 3,493 |   |
|                                                                                                                                                           |   |                                          |        |   |   |   |   |   |   |   |
| Net                    income (loss)                                                                                                                           |   | **$**                                         | **2,969**   |   | $ | (1,344 | ) | $ | 1,141 |   |
|                                                                                                                                                           |   |                                          |        |   |   |   |   |   |   |   |
| Earnings                    (loss) per share:                                                                                                                  |   |                                          |        |   |   |   |   |   |   |   |
| Basic                    earnings (loss) per share:                                                                                                            |   |                                          |        |   |   |   |   |   |   |   |
| Loss                    from continuing operations, after income taxes                                                                                         |   | **$**                                         | **(0.24**   | **)** | $ | (0.65 | ) | $ | (0.29 | ) |
| Discontinued                    operations, after income taxes                                                                                                 |   |                                          | **0.55**    |   |   | 0.48 |   |   | 0.40 |   |
| Net                    earnings (loss) per basic share                                                                                                         |   | **$**                                         | **0.31**    |   | $ | (0.17 | ) | $ | 0.11 |   |
|                                                                                                                                                           |   |                                          |        |   |   |   |   |   |   |   |
| Diluted                    earnings (loss) per share:                                                                                                          |   |                                          |        |   |   |   |   |   |   |   |
| Loss                    from continuing operations, after income taxes                                                                                         |   | **$**                                         | **(0.22**   | **)** | $ | (0.65 | ) | $ | (0.29 | ) |
| Discontinued                    operations, after income taxes                                                                                                 |   |                                          | **0.52**    |   |   | 0.48 |   |   | 0.40 |   |
| Net                    earnings (loss) per diluted share                                                                                                       |   | **$**                                         | **0.30**    |   | $ | (0.17 | ) | $ | 0.11 |   |
|                                                                                                                                                           |   |                                          |        |   |   |   |   |   |   |   |
| Average                    shares outstanding - basic                                                                                                          |   |                                          | **8,993**   |   |   | 8,869 |   |   | 8,691 |   |
|                                                                                                                                                           |   |                                          |        |   |   |   |   |   |   |   |
| Average                    shares and equivalents outstanding - diluted                                                                                        |   |                                          | **9,514**   |   |   | 8,869 |   |   | 8,972 |   |

*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 January 1, 2004                                                                                                 |   | $                                      | 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 |   |
| Net                    income                                                                                                                 |   |                                   |   |                                |   |                                              |   |                                               |       |                                                                 |   | **2,969**                                        |   |                                  |      |   |   |   |   |   |   |   |   | **2,969** |   |
| Other                    comprehensive income (loss):                                                                                         |   |                                   |   |                                |   |                                              |   |                                               |       |                                                                 |   |                                             |   |                                  |      |   |   |   |   |   |   |   |   |   |   |
| Minimum                    pension liability, net of tax of $237                                                                              |   |                                   |   |                                |   |                                              |   |                                               |       |                                                                 |   |                                             |   |                                  |      |   |   | **2,210** |   |   |   |   |   | **2,210** |   |
| Foreign                    currency translation                                                                                               |   |                                   |   |                                |   |                                              |   |                                               |       |                                                                 |   |                                             |   |                                  | **2,142** |   |   | **(2** | **)** |   |   |   |   | **2,140** |   |
| Total                    comprehensive income                                                                                                 |   |                                   |   |                                |   |                                              |   |                                               |       |                                                                 |   |                                             |   |                                  |      |   |   |   |   |   |   |   |   | **4,350** |   |
| Preferred                    stock dividends                                                                                                  |   |                                   |   |                                |   |                                              |   |                                               |       |                                                                 |   | **(150**                                         | **)**  |                                  |      |   |   |   |   |   |   |   |   | **(150** | **)** |
| Share                    based compensation - FAS 123(R)                                                                                      |   |                                   |   |                                |   |                                              |   |                                               | **264**    |                                                                 |   |                                             |   |                                  |      |   |   |   |   |   |   |   |   | **264** |   |
| Issuance                    of common stock from treasury as compensation and exercise of                    stock                    options |   |                                   |   |                                |   |                                              |   |                                               | **(121**   | **)**                                                                |   |                                             |   |                                  |      |   |   |   |   |   | **532** |   |   | **411** |   |
| Adjustment                    to initially adopt SFAS No. 158, net of tax of $1,140                                                           |   |                                   |   |                                |   |                                              |   |                                               |       |                                                                 |   |                                             |   |                                  |      |   |   | **(1,831** | **)** |   |   |   |   | **(1,831** | **)** |
| Balance                    at December 31, 2006                                                                                               |   | **$**                                  | **1**  |                                | **$**  | **92**                                            |   | **$**                                              | **53,492** |                                                                 | **$**  | **(2,026**                                       | **)**  | **$**                                 | **2,142** |   | **$** | **(5,609** | **)** | **$** | **(1,363** | **)** | **$** | **46,729** |   |

*See        notes to consolidated financial statements.*

**HAWK          CORPORATION**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

|  **(In                Thousands)**                                                                                       |   | **Year                  ended December 31** |        |
|-------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-------------|
|                                                                                                                          |   | **2006**                                    |        | **2005** |   | **2004** |   |
| **Cash                  flows from operating activities**                                                                     |   |                                        |        |   |   |   |   |
| Net                  income (loss)                                                                                            |   | **$**                                       | **2,969**   |   | $ | (1,344 | ) | $ | 1,141 |   |
| Adjustments                  to reconcile net income to net cash provided by (used in) operating                  activities: |   |                                        |        |   |   |   |   |   |   |   |
| Income                  from discontinued operations, net of tax                                                              |   |                                        | **(4,943**  | **)** |   | (4,240 | ) |   | (3,493 | ) |
| Depreciation                  and amortization                                                                                |   |                                        | **7,733**   |   |   | 7,619 |   |   | 7,389 |   |
| Write-off                  of unamortized consent payments and deferred financing                                             |   |                                        | **-**       |   |   | - |   |   | 1,521 |   |
| Deferred                  income taxes                                                                                        |   |                                        | **(653**    | **)** |   | (2,141 | ) |   | (1,602 | ) |
| Loss                  on sale or disposal of fixed assets                                                                     |   |                                        | **157**     |   |   | 858 |   |   | 1,007 |   |
| Goodwill                  impairment charge                                                                                   |   |                                        | **4,465**   |   |   | - |   |   | - |   |
| Changes                  in operating assets and liabilites:                                                                  |   |                                        |        |   |   |   |   |   |   |   |
| Accounts                  receivable                                                                                          |   |                                        | **(10,235** | **)** |   | 2,471 |   |   | (4,542 | ) |
| Inventories                                                                                                                   |   |                                        | **(876**    | **)** |   | (4,680 | ) |   | (5,554 | ) |
| Other                  assets                                                                                                 |   |                                        | **(387**    | **)** |   | (1,620 | ) |   | (1,271 | ) |
| Accounts                  payable                                                                                             |   |                                        | **(592**    | **)** |   | 5,882 |   |   | 1,052 |   |
| Accrued                  expenses                                                                                             |   |                                        | **7,713**   |   |   | (2,977 | ) |   | (84 | ) |
| (Decrease)                  increase in pension assets and liabilities, net                                                   |   |                                        | **(4,752**  | **)** |   | 3,055 |   |   | 1,548 |   |
| Other                  liabilities and other                                                                                  |   |                                        | **4,859**   |   |   | 1,365 |   |   | 127 |   |
| Net                  cash provided by (used in) operating activities of continuing                  operations                |   |                                        | **5,459**   |   |   | 4,248 |   |   | (2,761 | ) |
| Net                  cash provided by operating activities of discontinued                  operations                        |   |                                        | **10,254**  |   |   | 6,210 |   |   | 8,368 |   |
| **Cash                  flows from investing activities**                                                                     |   |                                        |        |   |   |   |   |   |   |   |
| Purchases                  of property, plant and equipment                                                                   |   |                                        | **(8,070**  | **)** |   | (7,767 | ) |   | (9,314 | ) |
| Proceeds                  from sale of property, plant and equipment                                                          |   |                                        | **1,633**   |   |   | 104 |   |   | 546 |   |
| Net                  cash used in investing activities of continuing operations                                               |   |                                        | **(6,437**  | **)** |   | (7,663 | ) |   | (8,768 | ) |
| Net                  cash used in investing activities of discontinued                  operations                            |   |                                        | **(5,185**  | **)** |   | (6,509 | ) |   | (8,821 | ) |
| **Cash                  flows from financing activities**                                                                     |   |                                        |        |   |   |   |   |   |   |   |
| Payments                  of deferred financing fees                                                                          |   |                                        | **-**       |   |   | - |   |   | (4,096 | ) |
| Proceeds                  from short-term debt                                                                                |   |                                        | **444**     |   |   | 871 |   |   | - |   |
| Payments                  on short-term debt                                                                                  |   |                                        | **(833**    | **)** |   | (798 | ) |   | (782 | ) |
| Proceeds                  from long-term debt                                                                                 |   |                                        | **82,450**  |   |   | 84,093 |   |   | - |   |
| Payments                  on long-term debt                                                                                   |   |                                        | **(87,611** | **)** |   | (79,429 | ) |   | (312 | ) |
| 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 | ) |
| Proceeds                  from Old Bank Facility                                                                              |   |                                        | **-**       |   |   | - |   |   | 92,336 |   |
| Payments                  on Old Bank Facility                                                                                |   |                                        | **-**       |   |   | - |   |   | (116,395 | ) |
| Stock                  options and issuance of treasury stock as compensation,                  net                           |   |                                        | **675**     |   |   | 737 |   |   | 679 |   |
| Payments                  of preferred stock dividends                                                                        |   |                                        | **(150**    | **)** |   | (148 | ) |   | (150 | ) |
| Net                  cash (used in) provided by financing activities of continuing                  operations                |   |                                        | **(5,025**  | **)** |   | 5,326 |   |   | 15,233 |   |
| Net                  cash used in financing activities of discontinued                  operations                            |   |                                        | **(181**    | **)** |   | (144 | ) |   | (877 | ) |
| Effect                  of exchange rate changes on cash                                                                      |   |                                        | **531**     |   |   | (575 | ) |   | 270 |   |
| Net                  cash (used in) provided by continuing operations                                                         |   |                                        | **(5,472**  | **)** |   | 1,336 |   |   | 3,974 |   |
| Net                  cash provided by (used in) discontinued operations                                                       |   |                                        | **4,888**   |   |   | (443 | ) |   | (1,330 | ) |
| Net                  (decrease) increase in cash and cash equivalents                                                         |   |                                        | **(584**    | **)** |   | 893 |   |   | 2,644 |   |
| Cash                  and cash equivalents at beginning of period                                                             |   |                                        | **6,761**   |   |   | 5,868 |   |   | 3,224 |   |
| Cash                  and cash equivalents at end of period                                                                   |   | **$**                                       | **6,177**   |   | $ | 6,761 |   | $ | 5,868 |   |
| **Supplemental                  cash flow information**                                                                       |   |                                        |        |   |   |   |   |   |   |   |
| Cash                  payments for interest                                                                                   |   | **$**                                       | **10,705**  |   | $ | 6,849 |   | $ | 12,189 |   |
| Cash                  payments (refunds) for income taxes, net                                                                |   | **$**                                       | **2,887**   |   | $ | 4,540 |   | $ | 3,000 |   |
| Noncash                  investing and financing activities:                                                                  |   |                                        |        |   |   |   |   |   |   |   |
| Equipment                  purchased with capital leases and notes payable                                                    |   | **$**                                       | **0**       |   | $ | 0 |   | $ | 0 |   |
| Issuance                  of common stock from treasury                                                                       |   | **$**                                       | **40**      |   | $ | 40 |   | $ | 40 |   |
| Stock                  option expense                                                                                         |   | **$**                                       | **264**     |   | $ | 0 |   | $ | 0 |   |
| Issuance                  of payment in kind (PIK) payments in the form of Old Senior                  Notes                  |   | **$**                                       | **0**       |   | $ | 0 |   | $ | 83 |   |

*See      notes to consolidated financial statements.*

**HAWK      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**Years      Ended December 31, 2006, 2005 and 2004**

**(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***

***Stock      options granted to Employees and Directors***

***Contingencies***

***Foreign      Currency***

***Revenue      Recognition***

***Significant      Concentrations***

***Product      Research and Development***

***Advertising***

***Income      Taxes***

***Fair      Value of Financial Instruments***

***Recent      Accounting Developments***

*Inventory        Costs *

*Accounting        Changes and Error Corrections*
*Accounting        Changes*
*Reporting        Accounting Changes in Interim Financial Statements*

*,        Fair Value Measurements*
* *

*Employers’        Accounting for Defined Benefit Pension and Other Postretirement Plans, an        amendment of FASB Statements No 87, 88, 106 and 132(R) *
*.        *

*The        Fair Value Option for Financial Assets and Financial Liabilities: Including        an        amendment of FASB Statement No. 115*

*Considering the Effects of Prior Year        Misstatements in Current Year Financial Statements *

**3.      - Discontinued Operations **

|                                                                      |   | **Year                  ended December 31** |       |
|---------------------------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                                      |   | **2006**                                    |       | **2005** |   | **2004** |   |
| Net                  sales                                                |   | **$**                                       | **98,875** |   | $ | 92,468 |   | $ | 91,607 |   |
|                                                                      |   |                                        |       |   |   |   |   |   |   |   |
| Income                  from discontinued operations, before income taxes |   | **$**                                       | **8,641**  |   | $ | 6,849 |   | $ | 5,729 |   |
| Income                  tax expense                                       |   |                                        | **3,698**  |   |   | 2,609 |   |   | 2,236 |   |
| Income                  from discontinued operations, net of tax          |   | **$**                                       | **4,943**  |   | $ | 4,240 |   | $ | 3,493 |   |

|                                                          |   | **2006****(1)** |       | **2005** |   |
|---------------------------------------------------------------|--------|-----------------|------------|----------|--------|
| Cash                                                          |   | **$**           | **54**     |     | $      | 121 |   |
| Accounts                  receivable                          |   |            | **13,495** |     |   | 15,182 |   |
| Inventory                                                     |   |            | **10,484** |     |   | 9,749 |   |
| Other                  current assets                         |   |            | **1,209**  |     |   | 2,184 |   |
| Property,                  plant and equipment                |   |            | **33,988** |     |   | 33,772 |   |
| Intangible                  assets                            |   |            | **28,083** |     |   | 28,093 |   |
| Total                  assets of discontinued operations      |   | **$**           | **87,313** |     | **$**  | **89,101** |   |
|                                                          |   |            |       |     |   |   |   |
| Accounts                  payable                             |   | **$**           | **7,724**  |     | $      | 11,190 |   |
| Other                  accrued expenses                       |   |            | **4,378**  |     |   | 3,169 |   |
| Total                  debt                                   |   |            | **693**    |     |   | 878 |   |
| Total                  liabilities of discontinued operations |   | **$**           | **12,795** |     | **$**  | **15,237** |   |

| (1) | There                are no remaining assets or liabilities of the motor segment classified                as                discontinued operations in the December 31, 2006 balance                sheet. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**4.      - Restructuring **

*Accounting      for Costs Associated with Exit or Disposal Activities *

| Restructuring                  cost accrual as of January 1, 2006   |   | $      | 473 |   |
|---------------------------------------------------------------------|--------|--------|-----|--------|
| Cash                  payments through December 31, 2006            |   |   | 473 |   |
| Restructuring                  cost accrual as of December 31, 2006 |   | $      | -   |   |

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

**5.      - Intangible Assets **

|                                     |   | **December                  31, 2006** |       | **December                  31, 2005**        |   |
|------------------------------------------|--------|----------------------------------------|------------|-----------------------------------------------|--------|
|                                     |   | **Gross**                              |       | **Accumulated                  Amortization** |   | **Net** |   | **Gross** |   | **Accumulated                  Amortization** |   | **Net** |   |
| Product                  certifications  |   | **$**                                  | **20,820** |                                          | **$**  | **12,936** |   | **$** | **7,884** |   | $ | 20,820 |   | $ | 12,441 |   | $ | 8,379 |   |
| Other                  intangible assets |   |                                   | **2,575**  |                                          |   | **2,575** |   |   | **-** |   |   | 2,575 |   |   | 2,575 |   |   | - |   |
|                                     |   |                                   |       |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   | **$**                                  | **23,395** |                                          | **$**  | **15,511** |   | **$** | **7,884** |   | $ | 23,395 |   | $ | 15,016 |   | $ | 8,379 |   |

**6.      - Financing Arrangements**

|                                                      |   | **December                  31** |        |
|-----------------------------------------------------------|--------|----------------------------------|-------------|
|                                                      |   | **2006**                         |        | **2005** |   |
| Short-term                  debt                          |   | **$**                            | **980**     |   | $ | 1,362 |   |
| Senior                  Notes                             |   |                             | **110,000** |   |   | 110,000 |   |
| Bank                  Facility                            |   |                             | **-**       |   |   | 5,041 |   |
| Other                                                     |   |                             | **180**     |   |   | 304 |   |
|                                                      |   |                             | **111,160** |   |   | 116,707 |   |
| Less                  current portion and short-term debt |   |                             | **1,107**   |   |   | 1,504 |   |
|                                                      |   | **$**                            | **110,053** |   | $ | 115,203 |   |

| **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.      **
**-      Stock Compensation Plan**

*Share-Based      Payment*

|                                           |   | **2006** |   | **2005****(1)**** ** |   | **2004** |   |
|------------------------------------------------|--------|----------|--------|---------------------------|--------|----------|--------|
| Expected                  volatility           |   |     | 89.2   | %                         |   | -        |   |   | 54.7 | % |
| Expected                  option life in years |   |     | 5.7    |                      |   | -        |   |   | 7.3 |   |
| Expected                  dividend yield       |   |     | 0.0    | %                         |   | -        |   |   | 0.0 | % |
| Risk-free                  interest rate       |   |     | 5.0    | %                         |   | -        |   |   | 4.3 | % |

| (1)   | The                Company did not issue any options during                2005. |
|-----------------|----------------------------------------------------------------------------------|

|                                          |   |   **Options**  |        | **Weighted****Average****Exercise****Price** |   | **Weighted****Average****Remaining                Contractual Term** |   | **Aggregate                Intrinsic Value****(in                thousands)** |                        |
|---------------------------------------------------------|--------|-------------------------------|-------------|----------------------------------------------|--------|----------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|-----------------------------|
| Options                outstanding at December 31, 2005 |   |                          | **942,080** |                                         | **$**  | **5.13**                                                             |   |                                                                          |                        |   |   |   |   |
| Granted                                                 |   |                          | **70,000**  |                                         |   | **12.85**                                                            |   |                                                                          |                        |   |   |   |   |
| Exercised                                               |   |                          | **(78,407** | **)**                                        |   | **4.74**                                                             |   |                                                                          |                        |   |   |   |   |
| Forfeited                or expired                     |   |                          | **(8,000**  | **)**                                        |   | **7.70**                                                             |   |                                                                          |                        |   |   |   |   |
|                                                    |   |                          |        |                                         |   |                                                                 |   |                                                                          |                        |   |   |   |   |
| Options                outstanding at December 31, 2006 |   |                          | **925,673** |                                         | **$**  | **5.73**                                                             |   |                                                                          | **5.8                yrs.** |   | **$** | **5,303** |   |
|                                                    |   |                          |        |                                         |   |                                                                 |   |                                                                          |                        |   |   |   |   |
| Exercisable                at December 31, 2006         |   |                          | **706,193** |                                         | **$**  | **4.95**                                                             |   |                                                                          | **5.1                yrs.** |   | **$** | **3,496** |   |

|                                         |   | **Outstanding** |    | **Exercisable**                                      |   |
|----------------------------------------------|--------|-----------------|---------|------------------------------------------------------|--------|
| **Range                  of Exercise Price** |   | **Options**     |    | **Weighted                  Average Exercise Price** |   | **Weighted                  Average Remaining Contractual Life (years)** |   | **Options** |   | **Weighted                  Average Exercise Price** |   |
| $                  3.40 to $ 3.50            |   |            | 101,943 |                                                 | $      | 3.40 |   |   | 4.4 |   |   | 101,943 |   | $ | 3.40 |   |
| $                  3.51 to $ 5.00            |   |            | 249,367 |                                                 | $      | 3.76 |   |   | 4.7 |   |   | 246,967 |   | $ | 3.70 |   |
| $                  5.01 to $ 6.00            |   |            | 280,363 |                                                 | $      | 5.17 |   |   | 4.7 |   |   | 223,283 |   | $ | 5.20 |   |
| $                  6.01 to $17.00            |   |            | 294,000 |                                                 | $      | 8.74 |   |   | 4.4 |   |   | 134,000 |   | $ | 7.90 |   |
| Total                                        |   |            | 925,673 |                                                 |   |   |   |   |   |   |   | 706,193 |   |   |   |   |

*Accounting      for Stock-Based Compensation*

|                                                                                                                              |   | **Year                  ended**        |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|
|                                                                                                                              |   | **December                  31, 2005** |   | **December                  31, 2004** |   |
| Net                  (loss) income as reported                                                                                    |   | $                                      | (1,344 | ) | $ | 1,141 |   |
| Employee                  stock-based compensation expense determined under fair value                  based methods, net of tax |   |                                   | 213 |   |   | 237 |   |
| Pro                  forma net (loss) earnings                                                                                    |   | $                                      | (1,557 | ) | $ | 904 |   |
|                                                                                                                              |   |                                   |   |   |   |   |   |
| Basic                  (loss) earnings per share:                                                                                 |   |                                   |   |   |   |   |   |
| As                  reported                                                                                                      |   | $                                      | (0.17 | ) | $ | 0.11 |   |
| Pro                  forma                                                                                                        |   | $                                      | (0.19 | ) | $ | 0.09 |   |
| Diluted                  (loss) earnings per share:                                                                               |   |                                   |   |   |   |   |   |
| As                  reported                                                                                                      |   | $                                      | (0.17 | ) | $ | 0.11 |   |
| Pro                  forma                                                                                                        |   | $                                      | (0.19 | ) | $ | 0.08 |   |

**10.      - Employee Benefits **

|                                                  |   | **Prior                  to Application of SFAS 158** |       | **Effect                  of Adopting SFAS 158** |   | **As                  Reported** |    |
|-------------------------------------------------------|--------|-------------------------------------------------------|------------|--------------------------------------------------|--------|----------------------------------|---------|
| ASSETS                                                |   |                                                  |       |                                             |   |                             |    |   |   |   |
| Other                  long term assets               |   | **$**                                                 | **2,752**  |                                             | **$**  | **(2,752**                       | **)**   | **$** | **-** |   |
| Deferred                  income taxes                |   |                                                  | **2,365**  |                                             |   | **1,140**                        |    |   | **3,505** |   |
|                                                  |   |                                                  |       |                                             |   |                             |    |   |   |   |
| LIABILITIES                  AND SHAREHOLDERS' EQUITY |   |                                                  |       |                                             |   |                             |    |   |   |   |
| Other                  accrued expenses - current     |   | **$**                                                 | **-**      |                                             | **$**  | **(46**                          | )  |   | **(46** | )  |
| Pension                  liabilities                  |   |                                                  | **(4,665** | )                                           |   | **(62**                          | )  |   | **(4,727** | )  |
| Other                  long-term liabilities          |   |                                                  | **(275**   | )                                           |   | **(111**                         | )  |   | **(386** | )  |
| Accumulated                  other comprehensive loss |   |                                                  | **3,778**  |                                             |   | **1,831**                        |    |   | **5,609** |   |

|                                                                               |   | **December                  31** |       |
|------------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                               |   | **2006**                         |       | **2005** |   |
| Accumulated                  benefit obligation                                    |   | **$**                            | **29,899** |   | $ | 29,383 |   |
|                                                                               |   |                             |       |   |   |   |   |
| Change                  in benefit obligation:                                     |   |                             |       |   |   |   |   |
| Benefit                  obligation at beginning of year                           |   | **$**                            | **33,163** |   | $ | 26,115 |   |
| Service                  cost                                                      |   |                             | **731**    |   |   | 1,061 |   |
| Interest                  cost                                                     |   |                             | **1,751**  |   |   | 1,516 |   |
| Actuarial                  (gains) losses                                          |   |                             | **(2,441** | **)** |   | 6,064 |   |
| Foreign                  currency exchange rate impact                             |   |                             | **30**     |   |   | 45 |   |
| Benefits                  paid                                                     |   |                             | **(2,182** | **)** |   | (1,638 | ) |
| Plan                  amendments                                                   |   |                             | **(961**   | **)** |   |   |   |
| Benefit                  obligation at end of year                                 |   | **$**                            | **30,091** |   | $ | 33,163 |   |
|                                                                               |   |                             |       |   |   |   |   |
| Change                  in plan assets:                                            |   |                             |       |   |   |   |   |
| Fair                  value of plan assets at beginning of year                    |   | **$**                            | **22,828** |   | $ | 20,948 |   |
| Actual                  return on plan assets                                      |   |                             | **2,602**  |   |   | 1,874 |   |
| Foreign                  currency exchange rate impact                             |   |                             | **19**     |   |   | 32 |   |
| Company                  contributions                                             |   |                             | **2,097**  |   |   | 1,612 |   |
| Benefits                  paid                                                     |   |                             | **(2,182** | **)** |   | (1,638 | ) |
| Fair                  value of plan assets at end of year                          |   | **$**                            | **25,364** |   | $ | 22,828 |   |
|                                                                               |   |                             |       |   |   |   |   |
| Funded                  status of the plans                                        |   | **$**                            | **(4,727** | **)** | $ | (10,335 | ) |
| Unrecognized                  net actuarial losses                                 |   |                             | **-**      |   |   | 13,479 |   |
| Unrecognized                  initial net obligation                               |   |                             | **-**      |   |   | 41 |   |
| Foreign                  currency exchange rate impact                             |   |                             | **-**      |   |   | 36 |   |
| Unamortized                  prior service cost                                    |   |                             | **-**      |   |   | 111 |   |
| Net                  (accrued) prepaid benefit cost                                |   | **$**                            | **(4,727** | **)** | $ | 3,332 |   |
|                                                                               |   |                             |       |   |   |   |   |
| Amounts                  recognized in the balance sheet consist of the following: |   |                             |       |   |   |   |   |
| Prepaid                  benefit cost                                              |   | **$**                            | **-**      |   | $ | 3,968 |   |
| Accrued                  benefit liability                                         |   |                             | **(4,727** | **)** |   | (10,522 | ) |
| Intangible                  asset                                                  |   |                             | **-**      |   |   | 159 |   |
| Cumulative                  other comprehensive loss, gross                        |   |                             | **-**      |   |   | 9,727 |   |
| Net                  amount recognized in the balance sheet                        |   | **$**                            | **(4,727** | **)** | $ | 3,332 |   |

|                                                               |   | **December                  31** |       |
|--------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                               |   | **2006**                         |       | **2005** |   |
| Projected                  benefit obligation                      |   | **$**                            | **30,091** |   | $ | 33,163 |   |
| Accumulated                  benefit obligation                    |   | **$**                            | **29,899** |   | $ | 29,383 |   |
| Fair                  value of plan assets                         |   | **$**                            | **25,364** |   | $ | 22,828 |   |
| Amounts                  recognized as accrued benefit liabilities |   | **$**                            | **4,727**  |   | $ | 10,522 |   |
| Amounts                  recognized as intangible asset            |   | **$**                            | **-**      |   | $ | 159 |   |

|                                                                |   | **Year                  ended December 31** |       |
|---------------------------------------------------------------------|--------|---------------------------------------------|------------|
| Components                  of net periodic pension cost:           |   | **2006**                                    |       | **2005** |   | **2004** |   |
| Service                  cost                                       |   | **$**                                       | **731**    |   | $ | 1,061 |   | $ | 1,073 |   |
| Interest                  cost                                      |   |                                        | **1,751**  |   |   | 1,516 |   |   | 1,490 |   |
| Expected                  return on plan assets                     |   |                                        | **(1,921** | **)** |   | (1,813 | ) |   | (1,610 | ) |
| Amortization                  of prior service cost                 |   |                                        | **139**    |   |   | 9 |   |   | 74 |   |
| Pension                  settlement/curtailment                     |   |                                        | **42**     |   |   | 194 |   |   | - |   |
| Recognized                  net actuarial loss                      |   |                                        | **464**    |   |   | 266 |   |   | 251 |   |
| Net                  periodic pension cost of defined benefit plans |   | **$**                                       | **1,206**  |   | $ | 1,233 |   | $ | 1,278 |   |

|                                           |   | **December                  31** |    |
|------------------------------------------------|--------|----------------------------------|---------|
|                                           |   | **2006**                         |    | **2005** |   |
| **Asset                  Category**            |   |                             |    |   |   |   |   |
| Equity                  securities             |   |                             | **69**  | **%** |   | 74 | % |
| Debt                  securities               |   |                             | **25**  | **%** |   | 20 | % |
| Hawk                  Corporation common stock |   |                             | **3**   | **%** |   | 4 | % |
| Other                                          |   |                             | **3**   | **%** |   | 2 | % |
| Total                                          |   |                             | **100** | **%** |   | 100 | % |

|                                                                                                                                                       |   | **2006** |    | **2005** |   | **2004** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Weighted                  average rates used to compute the projected benefit obligation                  as of                  December 31:              |   |     |    |     |   |     |   |
| Discount                  rate                                                                                                                             |   |     | **5.7** | **%**    |   | 5.5      | %      |   | 6.0 | % |
| Rate                  of compensation increase                                                                                                             |   |     | **3.0** | **%**    |   | 3.0      | %      |   | 3.0 | % |
|                                                                                                                                                       |   |     |    |     |   |     |   |   |   |   |
| Weighted                  average rates used to determine the net periodic benefit cost for                  the                  years ended December 31: |   |     |    |     |   |
| Discount                  rate                                                                                                                             |   |     | **5.5** | **%**    |   | 6.0      | %      |   | 6.3 | % |
| Rate                  of compensation increase                                                                                                             |   |     | **3.0** | **%**    |   | 3.0      | %      |   | 3.0 | % |
| Expected                  long-term rate of return on plan assets                                                                                     |   |     | **8.2** | **%**    |   | 8.6      | %      |   | 8.6 | % |

| **Year**  |   | **Benefit****Payments** |   |
|-----------|--------|-------------------------|--------|
| 2007      |   | $                       | 1,608  |   |
| 2008      |   | $                       | 1,569  |   |
| 2009      |   | $                       | 1,640  |   |
| 2010      |   | $                       | 1,637  |   |
| 2011      |   | $                       | 1,749  |   |
| 2012-2016 |   | $                       | 9,179  |   |

**11.      - Lease Obligations**

|                                              |   | **December                  31** |    |
|---------------------------------------------------|--------|----------------------------------|---------|
|                                              |   | **2006**                         |    | **2005** |   |
| Buildings                  and improvements       |   | **$**                            | **-**   |   | $ | 969 |   |
| Machinery                  and equipment          |   |                             | **637** |   |   | 765 |   |
| Gross                  assets under capital lease |   |                             | **637** |   |   | 1,734 |   |
| Accumulated                  amortization         |   |                             | **253** |   |   | 626 |   |
| Net                  assets under capital lease   |   | **$**                            | **384** |   | $ | 1,108 |   |

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

**12.      - Income Taxes **

|                                        |   | **Year                  ended December 31** |       |
|---------------------------------------------|--------|---------------------------------------------|------------|
|                                        |   | **2006**                                    |       | **2005** |   | **2004** |   |
| Current:                                    |   |                                        |       |   |   |   |   |   |   |   |
| Federal                                     |   | $                                           | -          |   | $ | - |   | $ | - |   |
| State                  and local            |   |                                        | **486**    |   |   | 56 |   |   | 24 |   |
| Foreign                                     |   |                                        | **3,876**  |   |   | 2,929 |   |   | 3,630 |   |
|                                        |   |                                        | **4,362**  |   |   | 2,985 |   |   | 3,654 |   |
| Deferred:                                   |   |                                        |       |   |   |   |   |   |   |   |
| Federal                                     |   |                                        | **(3,317** | **)** |   | (5,443 | ) |   | (3,355 | ) |
| State                  and local            |   |                                        | **(157**   | **)** |   | (575 | ) |   | 270 |   |
| Foreign                                     |   |                                        | **9**      |   |   | 642 |   |   | (92 | ) |
|                                        |   |                                        | **(3,465** | **)** |   | (5,376 | ) |   | (3,177 | ) |
| Total                  income tax provision |   | **$**                                       | **897**    |   | $ | (2,391 | ) | $ | 477 |   |

|                                            |   | **2006** |       | **2005** |   |
|-------------------------------------------------|--------|----------|------------|----------|--------|
| Deferred                  tax assets:           |   |     |       |     |   |   |   |
| NOL                  and AMT carryforward       |   | **$**    | **10,672** |     | $      | 10,607 |   |
| Accrued                  vacation               |   |     | **664**    |     |   | 601  |   |
| Employee                  benefits              |   |     | **3,205**  |     |   | 2,494 |   |
| Other                  accruals                 |   |     | **1,821**  |     |   | 3,039  |   |
| Inventory                                       |   |     | **1,949**  |     |   | 2,037  |   |
| Total                  deferred tax assets      |   |     | **18,311** |     |   | 18,778 |   |
| Deferred                  tax liabilities:      |   |     |       |     |   |   |   |
| Tax                  over book depreciation     |   |     | **9,908**  |     |   | 11,068  |   |
| Tax                  over book amortization     |   |     | **2,930**  |     |   | 2,834  |   |
| Foreign                  leased property        |   |     | **319**    |     |   | 339 |   |
| Debt                  financing costs           |   |     | **-**      |     |   | - |   |
| Other                                           |   |     | **350**    |     |   | 76 |   |
| Total                  deferred tax liabilities |   |     | **13,507** |     |   | 14,317  |   |
| Net                  deferred tax assets        |   | **$**    | **4,804**  |     | $      | 4,461 |   |

*Accounting      for Income Taxes, *

|                                                                                                     |   | **December                  31** |     |
|----------------------------------------------------------------------------------------------------------|--------|----------------------------------|----------|
|                                                                                                     |   | **2006**                         |     | **2005** |   | **2004** |   |
| Income                  tax (benefit) expense at federal statutory rate                                  |   | **$**                            | **(377** | **)** | $ | (2,793 | ) | $ | (662 | ) |
| State                  and local tax, net of federal tax benefit                                         |   |                             | **213**  |   |   | (335 | ) |   | 191 |   |
| Nondeductible                  intangible amortization                                                   |   |                             | **38**   |   |   | 38 |   |   | 53 |   |
| Taxes                  on foreign income which differ from United States statutory                  rate |   |                             | **759**  |   |   | 595 |   |   | 505 |   |
| Foreign                  tax withholding                                                                 |   |                             | **201**  |   |   | 183 |   |   | 294 |   |
| Adjustment                  to worldwide tax accrual and other                                           |   |                             | **63**   |   |   | (79 | ) |   | 96 |   |
| Provision                  for (benefit from) income taxes                                               |   | **$**                            | **897**  |   | $ | (2,391 | ) | $ | 477 |   |

|                                                                           |   | **Year                  ended December 31** |       |
|--------------------------------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                                           |   | **2006**                                    |       | **2005** |   | **2004** |   |
| (Loss)                  income from continuing operations before income taxes: |   |                                        |       |   |   |   |   |   |   |   |
| Domestic                                                                       |   | **$**                                       | **(9,432** | **)** | $ | (15,988 | ) | $ | (9,159 | ) |
| Foreign                                                                        |   |                                        | **8,355**  |   |   | 8,013 |   |   | 7,284 |   |
| As                  reported                                                   |   | **$**                                       | **(1,077** | **)** | $ | (7,975 | ) | $ | (1,875 | ) |

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

|                                                                                                                                             |   | **Year                  Ended December 31** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                                                                                                             |   | **2006**                                    |       | **2005** |   | **2004** |   |
| (Loss)                  income from continuing operations, after income taxes                                                                    |   | **$**                                       | **(1,974** | **)** | $ | (5,584 | ) | $ | (2,352 | ) |
| Less:                  Preferred stock dividends                                                                                                 |   |                                        | **150**    |   |   | 148 |   |   | 150 |   |
| (Loss)                  income from continuing operations, after income taxes available                  to common                  shareholders |   | **$**                                       | **(2,124** | **)** | $ | (5,732 | ) | $ | (2,502 | ) |
|                                                                                                                                             |   |                                        |       |   |   |   |   |   |   |   |
| Net                  income (loss)                                                                                                               |   | **$**                                       | **2,969**  |   | $ | (1,344 | ) | $ | 1,141 |   |
| Less:                  Preferred stock dividends                                                                                                 |   |                                        | **150**    |   |   | 148 |   |   | 150 |   |
| Net                  income (loss) available to common shareholders                                                                              |   | **$**                                       | **2,819**  |   | $ | (1,492 | ) | $ | 991 |   |
|                                                                                                                                             |   |                                        |       |   |   |   |   |   |   |   |
| Weighted                  average shares outstanding *(in                  thousands)*:                                                          |   |                                        |       |   |   |   |   |   |   |   |
| Basic                  weighted average shares outstanding                                                                                       |   |                                        | **8,993**  |   |   | 8,869 |   |   | 8,691 |   |
| Diluted:                                                                                                                                         |   |                                        |       |   |   |   |   |   |   |   |
| Basic                  weighted average shares outstanding                                                                                       |   |                                        | **8,993**  |   |   | 8,869 |   |   | 8,691 |   |
| Dilutive                  effect of stock options (1)                                                                                            |   |                                        | **521**    |   |   | - |   |   | 281 |   |
| Diluted                  weighted average shares outstanding                                                                                     |   |                                        | **9,514**  |   |   | 8,869 |   |   | 8,972 |   |
|                                                                                                                                             |   |                                        |       |   |   |   |   |   |   |   |
| Earnings                  (loss) per share:                                                                                                 |   |                                        |       |   |   |   |   |   |   |   |
| Basic                  (loss) earnings from continuing operations, after income                  taxes                                           |   | **$**                                       | **(0.24**  | **)** | $ | (0.65 | ) | $ | (0.29 | ) |
| Discontinued                  operations                                                                                                         |   |                                        | **0.55**   |   |   | 0.48 |   |   | 0.40 |   |
| Net                  earnings (loss) per basic share                                                                                             |   | **$**                                       | **0.31**   |   | $ | (0.17 | ) | $ | 0.11 |   |
|                                                                                                                                             |   |                                        |       |   |   |   |   |   |   |   |
| Diluted                  (loss) earnings from continuing operations, after income                  taxes                                         |   | **$**                                       | **(0.22**  | **)** | $ | (0.65 | ) | $ | (0.29 | ) |
| Discontinued                  operations                                                                                                         |   |                                        | **0.52**   |   |   | 0.48 |   |   | 0.40 |   |
| Net                  earnings (loss) per diluted share                                                                                           |   | **$**                                       | **0.30**   |   | $ | (0.17 | ) | $ | 0.11 |   |

**14.      - Related Parties **

**15.      - Business Segments **

|                                                               |   | **Year                  ended December 31** |        |
|--------------------------------------------------------------------|--------|---------------------------------------------|-------------|
|                                                               |   | **2006**                                    |        | **2005** |   | **2004** |   |
| Net                  sales to external customers:                  |   |                                        |        |   |   |   |   |   |   |   |
| Friction                  products                                 |   | **$**                                       | **199,915** |   | $ | 167,059 |   | $ | 148,242 |   |
| Performance                  racing                                |   |                                        | **12,135**  |   |   | 14,799 |   |   | 14,317 |   |
| Consolidated                                                       |   | **$**                                       | **212,050** |   | $ | 181,858 |   | $ | 162,559 |   |
|                                                               |   |                                        |        |   |   |   |   |   |   |   |
| Depreciation                  and amortization: (1)                |   |                                        |        |   |   |   |   |   |   |   |
| Friction                  products                                 |   | **$**                                       | **7,055**   |   | $ | 6,955 |   | $ | 6,792 |   |
| Performance                  racing                                |   |                                        | **241**     |   |   | 229 |   |   | 210 |   |
| Consolidated                                                       |   | **$**                                       | **7,296**   |   | $ | 7,184 |   | $ | 7,002 |   |
|                                                               |   |                                        |        |   |   |   |   |   |   |   |
| Gross                  profit:                                     |   |                                        |        |   |   |   |   |   |   |   |
| Friction                  products                                 |   | **$**                                       | **45,571**  |   | $ | 33,661 |   | $ | 36,468 |   |
| Performance                  racing                                |   |                                        | **1,816**   |   |   | 3,000 |   |   | 3,436 |   |
| Consolidated                                                       |   | **$**                                       | **47,387**  |   | $ | 36,661 |   | $ | 39,904 |   |
|                                                               |   |                                        |        |   |   |   |   |   |   |   |
| Income                  (loss) from operations:                    |   |                                        |        |   |   |   |   |   |   |   |
| Friction                  products                                 |   | **$**                                       | **16,290**  |   | $ | 3,203 |   | $ | 10,526 |   |
| Performance                  racing                                |   |                                        | **(6,389**  | **)** |   | (756 | ) |   | 439 |   |
| Consolidated                                                       |   | **$**                                       | **9,901**   |   | $ | 2,447 |   | $ | 10,965 |   |
|                                                               |   |                                        |        |   |   |   |   |   |   |   |
| Capital                  Expenditures: (including capital leases): |   |                                        |        |   |   |   |   |   |   |   |
| Friction                  products                                 |   | **$**                                       | **7,894**   |   | $ | 7,482 |   | $ | 9,126 |   |
| Performance                  racing                                |   |                                        | **176**     |   |   | 285 |   |   | 188 |   |
| Consolidated                                                       |   | **$**                                       | **8,070**   |   | $ | 7,767 |   | $ | 9,314 |   |

|                                     |   | **December                  31**        |        |
|------------------------------------------|--------|-----------------------------------------|-------------|
|                                     |   | **2006**                                |        | **2005** |   |
| Total                  assets:           |   | (dollars                  in thousands) |        |
| Friction                  products       |   | **$**                                   | **134,378** |   | $ | 124,318 |   |
| Performance                  racing      |   |                                    | **7,563**   |   |   | 12,580 |   |
| Continuing                  operations   |   |                                    | **141,941** |   |   | 136,898 |   |
| Discontinued                  operations |   |                                    | **87,313**  |   |   | 89,101 |   |
| Consolidated                             |   | **$**                                   | **229,254** |   | $ | 225,999 |   |

| (1)   | Depreciation                and amortization outlined in this table does not include deferred                financing amortization of $437 in 2006, $435 in 2005, and $387 in                2004,                which is included in Interest expense on the Statement of                Operations. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                   |   | **2006**                                 |        | **2005**                                |   | **2004**   |   |
|--------------------------------------------------------|--------|------------------------------------------|-------------|-----------------------------------------|--------|------------|--------|
|                                                   |   | **Domestic                  Operations** |        | **Foreign                  Operations** |   | **Total**  |   | **Domestic                  Operations** |   | **Foreign                  Operations** |   | **Total** |   | **Domestic                  Operations** |   | **Foreign                  Operations** |   | **Total** |   |
|                                                   |   | (In                  thousands)          |        |
| Net                  sales                             |   | **$**                                    | **147,525** |                                    | **$**  | **64,525** |   | **$** | **212,050** |   | $ | 126,863 |   | $ | 54,995 |   | $ | 181,858 |   | $ | 114,385 |   | $ | 48,174 |   | $ | 162,559 |   |
| Income                  from operations                |   |                                     | **1,470**   |                                    |   | **8,431**  |   |   | **9,901** |   |   | (6,621 | ) |   | 9,068 |   |   | 2,447 |   |   | 3,537 |   |   | 7,428 |   |   | 10,965 |   |
| Discontinued                  operations, net of tax   |   |                                     | **4,744**   |                                    |   | **199**    |   |   | **4,943** |   |   | 4,558 |   |   | (318 | ) |   | 4,240 |   |   | 3,670 |   |   | (177 | ) |   | 3,493 |   |
| Net                  (loss) income                     |   |                                     | **(1,708**  | **)**                                   |   | **4,677**  |   |   | **2,969** |   |   | (6,091 | ) |   | 4,747 |   |   | (1,344 | ) |   | (2,019 | ) |   | 3,160 |   |   | 1,141 |   |
| Total                  assets of continuing operations |   | **$**                                    | **91,364**  |                                    | **$**  | **50,577** |   | **$** | **141,941** |   | $ | 98,905 |   | $ | 37,993 |   | $ | 136,898 |   | $ | 99,078 |   | $ | 35,616 |   | $ | 134,694 |   |

|                                                                                      |   | **Years                  ended** |       |
|-------------------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                                      |   | **2006**                         |       | **2005** |   | **2004** |   |
| Income                  (loss) from                  operations - Friction products: |   | **$**                            | **16,290** |   | $ | 3,203 |   | $ | 10,526 |   |
| Restructuring                  costs                                                      |   |                             | **-**      |   |   | 5,464 |   |   | 1,117 |   |
| Employee                  benefit curtailment (income) expense                            |   |                             | **-**      |   |   | (424 | ) |   |  **-** |   |
| Loan                  forgiveness costs                                                   |   |                             | **-**      |   |   | 996 |   |   | 659 |   |
| Adjusted                  income from operations – Friction products                |   | **$**                            | **16,290** |   | $ | 9,239 |   | $ | 12,302 |   |
|                                                                                      |   |                             |       |   |   |   |   |   |   |   |
| (Loss)                  income from operations - Performance racing:                      |   | **$**                            | **(6,389** | **)** | $ | (756 | ) | $ | 439 |   |
| Goodwill                  Impairment                                                      |   |                             | **4,465**  |   |   | - |   |   | - |   |
| Loan                  forgiveness costs                                                   |   |                             | **-**      |   |   | 104 |   |   | 73 |   |
| Adjusted                  (loss) income from operations – Performance racing        |   | **$**                            | **(1,924** | **)** | $ | (652 | ) | $ | 512 |   |

*.*

**16.      - Supplemental Guarantor Information**

| ·    | Consolidating                    condensed balance sheets as of December 31, 2006 and December                    31, 2005,                    consolidating condensed statements of operations for the years                    ended                    December 31, 2006, 2005 and 2004 and consolidating condensed                    statements of                    cash flows for the years ended December 31, 2006, 2005 and                    2004.  |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | 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, 2006** |         |
|-------------------------------------------------------------------|--------|----------------------------------------|--------------|
|                                                              |   |   **Parent**                 |         | **Combined                  Guarantor Subsidiaries** |   | **Combined****Non-Guarantor                  Subsidiaries** |   |   **Eliminations** |   |   **Consolidated** |   |
| **Assets**                                                        |   |                                   |         |   |   |   |   |   |   |   |   |
| Current                  assets:                                  |   |                                   |         |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                        |   | **$**                                  | **500**      |   | **$** | **55** |   | **$** | **5,622** |   | **$** | **-** |   | **$** | **6,177** |   |
| Accounts                  receivable, net                         |   |                                   | **-**        |   |   | **14,500** |   |   | **20,002** |   |   | **-** |   |   | **34,502** |   |
| Inventories,                  net                                 |   |                                   | **(762**     | **)** |   | **27,431** |   |   | **12,862** |   |   | **(641** | **)** |   | **38,890** |   |
| Deferred                  income taxes                            |   |                                   | **2,202**    |   |   | **1** |   |   | **269** |   |   | **-** |   |   | **2,472** |   |
| Taxes                  receivable                                 |   |                                   | **-**        |   |   | **-** |   |   | **-** |   |   | **-** |   |   | **-** |   |
| Other                  current assets                             |   |                                   | **1,678**    |   |   | **680** |   |   | **2,250** |   |   | **(1** | **)** |   | **4,607** |   |
| Assets                  held for sale                             |   |                                   | **-**        |   |   | **-** |   |   | **-** |   |   | **-** |   |   | **-** |   |
| Assets                  of discontinued operations                |   |                                   | **-**        |   |   | **84,221** |   |   | **3,147** |   |   | **(55** | **)** |   | **87,313** |   |
| Total                  current assets                             |   |                                   | **3,618**    |   |   | **126,888** |   |   | **44,152** |   |   | **(697** | **)** |   | **173,961** |   |
| Investment                  in subsidiaries                       |   |                                   | **793**      |   |   | **-** |   |   | **-** |   |   | **(793** | **)** |   | **-** |   |
| Inter-company                  advances, net                      |   |                                   | **-**        |   |   | **12,250** |   |   | **(12,258** | **)** |   | **8** |   |   | **-** |   |
| Property,                  plant and equipment, net               |   |                                   | **-**        |   |   | **29,355** |   |   | **10,054** |   |   | **-** |   |   | **39,409** |   |
| Other                  assets:                                    |   |                                   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill                  and other intangible assets             |   |                                   | **-**        |   |   | **7,884** |   |   | **-** |   |   | **-** |   |   | **7,884** |   |
| Other                                                             |   |                                   | **4,713**    |   |   | **3,017** |   |   | **270** |   |   | **-** |   |   | **8,000** |   |
| Total                  other assets                               |   |                                   | **4,713**    |   |   | **10,901** |   |   | **270** |   |   | **-** |   |   | **15,884** |   |
| Total                  assets                                     |   | **$**                                  | **9,124**    |   | **$** | **179,394** |   | **$** | **42,218** |   | **$** | **(1,482** | **)** | **$** | **229,254** |   |
| **Liabilities                  and shareholders’ equity**   |   |                                   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                  liabilities:                             |   |                                   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                  payable                                 |   | **$**                                  | **(584**     | **)** | **$** | **10,653** |   | **$** | **12,954** |   | **$** | **-** |   | **$** | **23,023** |   |
| Accrued                  compensation                             |   |                                   | **1,463**    |   |   | **3,352** |   |   | **1,863** |   |   | **-** |   |   | **6,678** |   |
| Accrued                  interest                                 |   |                                   | **4,858**    |   |   | **(1** | **)** |   | **-** |   |   | **-** |   |   | **4,857** |   |
| Accrued                  taxes                                    |   |                                   | **1,671**    |   |   | **205** |   |   | **876** |   |   | **(194** | **)** |   | **2,558** |   |
| Other                  accrued expenses                           |   |                                   | **946**      |   |   | **4,112** |   |   | **1,118** |   |   | **-** |   |   | **6,176** |   |
| Short-term                  debt                                  |   |                                   | **-**        |   |   | **-** |   |   | **980** |   |   | **-** |   |   | **980** |   |
| Current                  portion of long-term debt                |   |                                   | **-**        |   |   | **-** |   |   | **127** |   |   | **-** |   |   | **127** |   |
| Liabilities                  of discontinued operations           |   |                                   | **-**        |   |   | **12,335** |   |   | **477** |   |   | **(17** | **)** |   | **12,795** |   |
| Total                  current liabilities                        |   |                                   | **8,354**    |   |   | **30,656** |   |   | **18,395** |   |   | **(211** | **)** |   | **57,194** |   |
| Long-term                  liabilities:                           |   |                                   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term                  debt                                   |   |                                   | **110,000**  |   |   | **-** |   |   | **53** |   |   | **-** |   |   | **110,053** |   |
| Deferred                  income taxes                            |   |                                   | **-**        |   |   | **-** |   |   | **1,025** |   |   | **-** |   |   | **1,025** |   |
| Other                                                             |   |                                   | **305**      |   |   | **10,427** |   |   | **3,521** |   |   | **-** |   |   | **14,253** |   |
| Inter-company                  advances, net                      |   |                                   | **(177,580** | **)** |   | **167,409** |   |   | **10,637** |   |   | **(466** | **)** |   | **-** |   |
| Total                  long-term liabilities                      |   |                                   | **(67,275**  | **)** |   | **177,836** |   |   | **15,236** |   |   | **(466** | **)** |   | **125,331** |   |
| Shareholders’                  equity                       |   |                                   | **68,045**   |   |   | **(29,098** | **)** |   | **8,587** |   |   | **(805** | **)** |   | **46,729** |   |
| Total                  liabilities and shareholders’ equity |   | **$**                                  | **9,124**    |   | **$** | **179,394** |   | **$** | **42,218** |   | **$** | **(1,482** | **)** | **$** | **229,254** |   |

**Supplemental      Consolidating Condensed**

**Balance      Sheet**

|                                                              |   | **December                  31, 2005** |     |
|-------------------------------------------------------------------|--------|----------------------------------------|----------|
|                                                              |   | **Parent**                             |     | **Combined                  Guarantor Subsidiaries** |   | **Combined****Non-Guarantor                  Subsidiaries** |   | **Eliminations** |   | **Consolidated** |   |
| **Assets**                                                        |   |                                   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                  assets:                                  |   |                                   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                        |   | $                                      | -        |   | $ | 39 |   | $ | 6,722 |   | $ | - |   | $ | 6,761 |   |
| Accounts                  receivable, net                         |   |                                   | -        |   |   | 13,020 |   |   | 9,949 |   |   | - |   |   | 22,969 |   |
| Inventories,                  net                                 |   |                                   | (716     | ) |   | 28,049 |   |   | 10,305 |   |   | (518 | ) |   | 37,120 |   |
| Deferred                  income taxes                            |   |                                   | 4,112    |   |   | - |   |   | 318 |   |   | - |   |   | 4,430 |   |
| Taxes                  receivable                                 |   |                                   | -        |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Other                  current assets                             |   |                                   | 1,605    |   |   | 1,419 |   |   | 1,805 |   |   | (117 | ) |   | 4,712 |   |
| Assets                  held for sale                             |   |                                   | -        |   |   | 1,644 |   |   | - |   |   | - |   |   | 1,644 |   |
| Current                  assets of discontinued operations        |   |                                   | -        |   |   | 23,063 |   |   | 4,550 |   |   | (49 | ) |   | 27,564 |   |
| Total                  current assets                             |   |                                   | 5,001    |   |   | 67,234 |   |   | 33,649 |   |   | (684 | ) |   | 105,200 |   |
| Investment                  in subsidiaries                       |   |                                   | 793      |   |   | - |   |   | - |   |   | (793 | ) |   | - |   |
| Inter-company                  advances, net                      |   |                                   | (800     | ) |   | 878 |   |   | (86 | ) |   | 8 |   |   | - |   |
| Property,                  plant and equipment, net               |   |                                   | -        |   |   | 29,335 |   |   | 8,139 |   |   | - |   |   | 37,474 |   |
| Other                  assets:                                    |   |                                   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill                  and other intangible assets             |   |                                   | 286      |   |   | 12,558 |   |   | - |   |   | - |   |   | 12,844 |   |
| Other                                                             |   |                                   | 916      |   |   | 7,131 |   |   | 897 |   |   | - |   |   | 8,944 |   |
| Long-term                  assets of discontinued operations      |   |                                   | -        |   |   | 59,719 |   |   | 1,818 |   |   | - |   |   | 61,537 |   |
| Total                  other assets                               |   |                                   | 1,202    |   |   | 79,408 |   |   | 2,715 |   |   | - |   |   | 83,325 |   |
| Total                  assets                                     |   | $                                      | 6,196    |   | $ | 176,855 |   | $ | 44,417 |   | $ | (1,469 | ) | $ | 225,999 |   |
| **Liabilities                  and shareholders’ equity**   |   |                                   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                  liabilities:                             |   |                                   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                  payable                                 |   | $                                      | (229     | ) | $ | 13,159 |   | $ | 9,230 |   | $ | - |   | $ | 22,160 |   |
| Accrued                  compensation                             |   |                                   | 286      |   |   | 2,394 |   |   | 1,778 |   |   | - |   |   | 4,458 |   |
| Accrued                  interest                                 |   |                                   | 4,863    |   |   | - |   |   | 32 |   |   | - |   |   | 4,895 |   |
| Accrued                  taxes                                    |   |                                   | 603      |   |   | 159 |   |   | 37 |   |   | (157 | ) |   | 642 |   |
| Other                  accrued expenses                           |   |                                   | 1,203    |   |   | 3,475 |   |   | 589 |   |   | - |   |   | 5,267 |   |
| Short-term                  debt                                  |   |                                   | -        |   |   | - |   |   | 1,362 |   |   | - |   |   | 1,362 |   |
| Current                  portion of long-term debt                |   |                                   | -        |   |   | - |   |   | 142 |   |   | - |   |   | 142 |   |
| Current                  liabilities of discontinued operations   |   |                                   | -        |   |   | 10,577 |   |   | 3,939 |   |   | (15 | ) |   | 14,501 |   |
| Total                  current liabilities                        |   |                                   | 6,726    |   |   | 29,764 |   |   | 17,109 |   |   | (172 | ) |   | 53,427 |   |
| Long-term                  liabilities:                           |   |                                   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term                  debt                                   |   |                                   | 115,041  |   |   | - |   |   | 162 |   |   | - |   |   | 115,203 |   |
| Deferred                  income taxes                            |   |                                   | -        |   |   | - |   |   | 885 |   |   | - |   |   | 885 |   |
| Other                                                             |   |                                   | -        |   |   | 11,553 |   |   | 3,479 |   |   | - |   |   | 15,032 |   |
| Long-term                  liabilities of discontinued operations |   |                                   | -        |   |   | 712 |   |   | 24 |   |   | - |   |   | 736 |   |
| Inter-company                  advances, net                      |   |                                   | (183,102 | ) |   | 173,699 |   |   | 9,885 |   |   | (482 | ) |   | - |   |
| Total                  long-term liabilities                      |   |                                   | (68,061  | ) |   | 185,964 |   |   | 14,435 |   |   | (482 | ) |   | 131,856 |   |
| Shareholders’                  equity                       |   |                                   | 67,531   |   |   | (38,873 | ) |   | 12,873 |   |   | (815 | ) |   | 40,716 |   |
| Total                  liabilities and shareholders’ equity |   | $                                      | 6,196    |   | $ | 176,855 |   | $ | 44,417 |   | $ | (1,469 | ) | $ | 225,999 |   |

**Supplemental      Consolidating Condensed**

**Statement      of Operations**

|                                                                           |   | **Year                  ended December 31, 2006** |      |
|--------------------------------------------------------------------------------|--------|---------------------------------------------------|-----------|
|                                                                           |   | **Parent**                                        |      | **Combined                  Guarantor Subsidiaries** |   | **Combined****Non-Guarantor                  Subsidiaries** |   | **Eliminations** |   | **Consolidated** |   |
| Net                  sales                                                     |   | **$**                                             | **-**     |   | **$** | **150,577** |   | **$** | **73,419** |   | **$** | **(11,946** | **)** | **$** | **212,050** |   |
| Cost                  of sales                                                 |   |                                              | **26**    |   |   | **118,000** |   |   | **58,583** |   |   | **(11,946** | **)** |   | **164,663** |   |
| Gross                  profit                                                  |   |                                              | **(26**   | **)** |   | **32,577** |   |   | **14,836** |   |   | **-** |   |   | **47,387** |   |
| Operating                  expenses:                                           |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  technical and administrative expenses                |   |                                              | **713**   |   |   | **25,407** |   |   | **6,406** |   |   | **-** |   |   | **32,526** |   |
| Goodwill                  Impairment                                           |   |                                              | **-**     |   |   | **4,465** |   |   | **-** |   |   | **-** |   |   | **4,465** |   |
| Amortization                  of intangibles                                   |   |                                              | **-**     |   |   | **495** |   |   | **-** |   |   | **-** |   |   | **495** |   |
| Total                  operating expenses                                      |   |                                              | **713**   |   |   | **30,367** |   |   | **6,406** |   |   | **-** |   |   | **37,486** |   |
| (Loss)                  income from operations                                 |   |                                              | **(739**  | **)** |   | **2,210** |   |   | **8,430** |   |   | **-** |   |   | **9,901** |   |
| Interest                  income (expense), net                                |   |                                              | **3,566** |   |   | **(14,693** | **)** |   | **43** |   |   | **-** |   |   | **(11,084** | **)** |
| Income                  from equity investee                                   |   |                                              | **2,622** |   |   | **4,675** |   |   | **-** |   |   | **(7,297** | **)** |   | **-** |   |
| Other                  (expense) income, net                                   |   |                                              | **(26**   | **)** |   | **446** |   |   | **(314** | **)** |   | **-** |   |   | **106** |   |
| Income                  (loss) from continuing operations, before income taxes |   |                                              | **5,423** |   |   | **(7,362** | **)** |   | **8,159** |   |   | **(7,297** | **)** |   | **(1,077** | **)** |
| Income                  tax provision (benefit)                                |   |                                              | **2,454** |   |   | **(5,240** | **)** |   | **3,683** |   |   | **-** |   |   | **897** |   |
| Income                  (loss) from continuing operations, after income taxes  |   |                                              | **2,969** |   |   | **(2,122** | **)** |   | **4,476** |   |   | **(7,297** | **)** |   | **(1,974** | **)** |
| Discontinued                  operations, net of tax                           |   |                                              | **-**     |   |   | **4,744** |   |   | **199** |   |   | **-** |   |   | **4,943** |   |
| Net                  income                                                    |   | **$**                                             | **2,969** |   | **$** | **2,622** |   | **$** | **4,675** |   | **$** | **(7,297** | **)** | **$** | **2,969** |   |

**Supplemental      Consolidating Condensed**

**Statement      of Operations**

|                                                                          |   | **Year                  ended December 31, 2005** |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                          |   | **Parent**                                        |   | **Combined                  Guarantor Subsidiaries** |   | **Combined****Non-Guarantor                  Subsidiaries** |   | **Eliminations** |   | **Consolidated** |   |
| Net                  sales                                                    |   | $                                                 | -      |   | $ | 128,764 |   | $ | 63,765 |   | $ | (10,671 | ) | $ | 181,858 |   |
| Cost                  of sales                                                |   |                                              | -      |   |   | 106,659 |   |   | 49,209 |   |   | (10,671 | ) |   | 145,197 |   |
| Gross                  profit                                                 |   |                                              | -      |   |   | 22,105 |   |   | 14,556 |   |   | - |   |   | 36,661 |   |
| Operating                  expenses:                                          |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  technical and administrative expenses               |   |                                              | 1,005  |   |   | 22,459 |   |   | 5,488 |   |   | - |   |   | 28,952 |   |
| Restructuring                  costs                                          |   |                                              | -      |   |   | 4,962 |   |   | - |   |   | - |   |   | 4,962 |   |
| Employee                  benefit curtailment                                 |   |                                              | -      |   |   | (424 | ) |   | - |   |   | - |   |   | (424 | ) |
| Amortization                  of intangibles                                  |   |                                              | -      |   |   | 724 |   |   | - |   |   | - |   |   | 724 |   |
| Total                  operating expenses                                     |   |                                              | 1,005  |   |   | 27,721 |   |   | 5,488 |   |   | - |   |   | 34,214 |   |
| (Loss)                  income from operations                                |   |                                              | (1,005 | ) |   | (5,616 | ) |   | 9,068 |   |   | - |   |   | 2,447 |   |
| Interest                  income (expense), net                               |   |                                              | 3,577  |   |   | (14,035 | ) |   | (64 | ) |   | - |   |   | (10,522 | ) |
| (Loss)                  income from equity investee                           |   |                                              | (2,394 | ) |   | 4,744 |   |   | - |   |   | (2,350 | ) |   | - |   |
| Other                  (expense) income, net                                  |   |                                              | (34    | ) |   | 679 |   |   | (545 | ) |   | - |   |   | 100 |   |
| Income                  (loss) from continuing operations before income taxes |   |                                              | 144    |   |   | (14,228 | ) |   | 8,459 |   |   | (2,350 | ) |   | (7,975 | ) |
| Income                  tax provision (benefit)                               |   |                                              | 1,488  |   |   | (7,276 | ) |   | 3,397 |   |   | - |   |   | (2,391 | ) |
| (Loss)                  income from continuing operations, after income taxes |   |                                              | (1,344 | ) |   | (6,952 | ) |   | 5,062 |   |   | (2,350 | ) |   | (5,584 | ) |
| Discontinued                  operations, net of tax                          |   |                                              | -      |   |   | 4,558 |   |   | (318 | ) |   | - |   |   | 4,240 |   |
| 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                                                    |   | $                                                 | -      |   | $ | 117,491 |   | $ | 55,891 |   | $ | (10,823 | ) | $ | 162,559 |   |
| Cost                  of sales                                                |   |                                              | 42     |   |   | 90,049 |   |   | 43,387 |   |   | (10,823 | ) |   | 122,655 |   |
| Gross                  profit                                                 |   |                                              | (42    | ) |   | 27,442 |   |   | 12,504 |   |   | - |   |   | 39,904 |   |
| Operating                  expenses:                                          |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  technical and administrative expenses               |   |                                              | 406    |   |   | 21,614 |   |   | 5,078 |   |   | - |   |   | 27,098 |   |
| Restructuring                  costs                                          |   |                                              | -      |   |   | 1,117 |   |   | - |   |   | - |   |   | 1,117 |   |
| Amortization                  of intangibles                                  |   |                                              | -      |   |   | 724 |   |   | - |   |   | - |   |   | 724 |   |
| Total                  operating expenses                                     |   |                                              | 406    |   |   | 23,455 |   |   | 5,078 |   |   | - |   |   | 28,939 |   |
| (Loss)                  income from operations                                |   |                                              | (448   | ) |   | 3,987 |   |   | 7,426 |   |   | - |   |   | 10,965 |   |
| Interest                  income (expense), net                               |   |                                              | 3,666  |   |   | (13,760 | ) |   | (71 | ) |   | - |   |   | (10,165 | ) |
| 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  |   |   | (6,878 | ) |   | 6,581 |   |   | (3,908 | ) |   | (1,875 | ) |
| Income                  tax provision (benefit)                               |   |                                              | 1,189  |   |   | (3,956 | ) |   | 3,244 |   |   | - |   |   | 477 |   |
| (Loss)                  income from continuing operations, after income taxes |   |                                              | 1,141  |   |   | (2,922 | ) |   | 3,337 |   |   | (3,908 | ) |   | (2,352 | ) |
| Discontinued                  operations, net of tax                          |   |                                              | -      |   |   | 3,670 |   |   | (177 | ) |   | - |   |   | 3,493 |   |
| Net                  income (loss)                                            |   | $                                                 | 1,141  |   | $ | 748 |   | $ | 3,160 |   | $ | (3,908 | ) | $ | 1,141 |   |

**Supplemental      Consolidating Condensed**

**Cash      Flows Statement**

|                                                                                                           |   | **Year                  ended December 31, 2006** |        |
|----------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|-------------|
|                                                                                                           |   | **Parent**                                        |        | **Combined                  Guarantor Subsidiaries** |   | **Combined****Non-Guarantor                  Subsidiaries** |   | **Eliminations** |   | **Consolidated** |   |
| Net                  cash provided by (used in) operating activities                  of continuing operations |   | **$**                                             | **5,015**   |   | **$** | **(951** | **)** | **$** | **1,395** |   | **$** | **-** |   | **$** | **5,459** |   |
| Net                  cash provided by operating activities                  of discontinued operations         |   |                                              | **-**       |   |   | **9,072** |   |   | **1,182** |   |   | **-** |   |   | **10,254** |   |
| Cash                  flows from investing activities:                                                         |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchases                  of property, plant and equipment                                                    |   |                                              | **-**       |   |   | **(5,017** | **)** |   | **(3,053** | **)** |   | **-** |   |   | **(8,070** | **)** |
| Proceeds                  from sale of property, plant and equipment                                           |   |                                              | **-**       |   |   | **1,633** |   |   | **-** |   |   | **-** |   |   | **1,633** |   |
| Net                  cash used in investing activities of continuing                  operations               |   |                                              | **-**       |   |   | **(3,384** | **)** |   | **(3,053** | **)** |   | **-** |   |   | **(6,437** | **)** |
| Net                  cash used in investing activities of discontinued                  operations             |   |                                              | **-**       |   |   | **(4,550** | **)** |   | **(635** | **)** |   | **-** |   |   | **(5,185** | **)** |
| Cash                  flows from financing activities:                                                         |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                  from short-term debt                                                                 |   |                                              | **-**       |   |   | **-** |   |   | **444** |   |   | **-** |   |   | **444** |   |
| Payments                  on short-term debt                                                                   |   |                                              | **-**       |   |   | **-** |   |   | **(833** | **)** |   | **-** |   |   | **(833** | **)** |
| Proceeds                  from long-term debt                                                                  |   |                                              | **82,450**  |   |   | **-** |   |   | **-** |   |   | **-** |   |   | **82,450** |   |
| Payments                  on long-term debt                                                                    |   |                                              | **(87,490** | **)** |   | **-** |   |   | **(121** | **)** |   | **-** |   |   | **(87,611** | **)** |
| Stock                  options and issuance of treasury stock as compensation,                  net            |   |                                              | **675**     |   |   | **-** |   |   | **-** |   |   | **-** |   |   | **675** |   |
| Payments                  of preferred stock dividend                                                          |   |                                              | **(150**    | **)** |   | **-** |   |   | **-** |   |   | **-** |   |   | **(150** | **)** |
| Net                  cash used in financing activities                  of continuing operations               |   |                                              | **(4,515**  | **)** |   | **-** |   |   | **(510** | **)** |   | **-** |   |   | **(5,025** | **)** |
| Net                  cash used in financing activities                  of discontinued operations             |   |                                              |        |   |   | **(171** | **)** |   | **(10** | **)** |   |   |   |   | **(181** | **)** |
| Effect                  of exchange rate changes on cash                                                       |   |                                              | **-**       |   |   | **-** |   |   | **531** |   |   | **-** |   |   | **531** |   |
| Net                  cash provided by (used in) continuing operations                                          |   |                                              | **500**     |   |   | **(4,335** | **)** |   | **(1,637** | **)** |   | **-** |   |   | **(5,472** | **)** |
| Net                  cash provided by discontinued operations                                                  |   |                                              | **-**       |   |   | **4,351** |   |   | **537** |   |   | **-** |   |   | **4,888** |   |
| Net                  increase (decrease) in cash and cash equivalents                                          |   |                                              | **500**     |   |   | **16** |   |   | **(1,100** | **)** |   | **-** |   |   | **(584** | **)** |
| Cash                  and cash equivalents, at beginning of period                                             |   |                                              | **-**       |   |   | **39** |   |   | **6,722** |   |   | **-** |   |   | **6,761** |   |
| Cash                  and cash equivalents, at end of period                                                   |   | **$**                                             | **500**     |   | **$** | **55** |   | **$** | **5,622** |   | **$** | **-** |   | **$** | **6,177** |   |

**Supplemental      Consolidating Condensed**

**Cash      Flows 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   |       | $                                                 | (6,475  | ) | $ | 5,491 |   | $ | 5,232 |   | $ | - |   | $ | 4,248 |   |
| Net                  cash provided by (used in) operating activities of discontinued                  operations | ** ** | ** **                                        | -       |   |   | 6,682 |   |   | (472 | ) |   | - |   |   | 6,210 |   |
| Cash                  flows from investing activities                                                            |       |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchases                  of property, plant and equipment                                                      |       |                                              | -       |   |   | (6,270 | ) |   | (1,497 | ) |   | - |   |   | (7,767 | ) |
| Proceeds                  from sale or property, plant and equipment                                             |       |                                              | -       |   |   | 92 |   |   | 12 |   |   | - |   |   | 104 |   |
| Net                  cash used in investing activities of continuing operations                                  |       |                                              | -       |   |   | (6,178 | ) |   | (1,485 | ) |   | - |   |   | (7,663 | ) |
| Net                  cash used in investing activities of discontinued                  operations               |       |                                              | -       |   |   | (5,818 | ) |   | (691 | ) |   | - |   |   | (6,509 | ) |
| Cash                  flows from financing activities                                                            |       |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                  on short-term debt                                                                     |       |                                              | -       |   |   | - |   |   | 871 |   |   | - |   |   | 871 |   |
| Payment                  on short-term debt                                                                      |       |                                              | -       |   |   | - |   |   | (798 | ) |   | - |   |   | (798 | ) |
| Proceeds                  from long-term debt                                                                    |       |                                              | 84,093  |   |   | - |   |   | - |   |   | - |   |   | 84,093 |   |
| Payments                  on long-term debt                                                                      |       |                                              | (79,276 | ) |   | (2 | ) |   | (151 | ) |   | - |   |   | (79,429 | ) |
| Net                  proceeds from exercise of stock options                                                     |       |                                              | 737     |   |   | - |   |   | - |   |   | - |   |   | 737 |   |
| Payments                  of preferred stock dividends                                                           |       |                                              | (148    | ) |   | - |   |   | - |   |   | - |   |   | (148 | ) |
| Net                  cash provided by (used in) financing activities of continuing                  operations   |       |                                              | 5,406   |   |   | (2 | ) |   | (78 | ) |   | - |   |   | 5,326 |   |
| Net                  cash (used in) provided by financing activities of discontinued                  operations |       |                                              |    |   |   | (169 | ) |   | 25 |   |   |   |   |   | (144 | ) |
| Effect                  of exchange rate changes on cash                                                         |       |                                              | -       |   |   | - |   |   | (575 | ) |   | - |   |   | (575 | ) |
| Net                  cash (used in) provided by continuing operations                                            |       |                                              | (1,069  | ) |   | (689 | ) |   | 3,094 |   |   | - |   |   | 1,336 |   |
| Net                  cash provided by (used in) discontinued operations                                          |       |                                              | -       |   |   | 695 |   |   | (1,138 | ) |   | - |   |   | (443 | ) |
| Net                  (decrease) increase in cash and cash equivalents                                            |       |                                              | (1,069  | ) |   | 6 |   |   | 1,956 |   |   | - |   |   | 893 |   |
| Cash                  and cash equivalents, at beginning of period                                               |       |                                              | 1,069   |   |   | 33 |   |   | 4,766 |   |   | - |   |   | 5,868 |   |
| Cash                  and cash equivalents, at end of period                                                     |       | $                                                 | -       |   | $ | 39 |   | $ | 6,722 |   | $ | - |   | $ | 6,761 |   |

**Supplemental      Consolidating Condensed**

**Cash      Flows Statement**

|                                                                                                             |   | **Year                  ended December 31, 2004** |     |
|------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|----------|
|                                                                                                             |   | **Parent**                                        |     | **Combined                  Guarantor Subsidiaries** |   | **Combined****Non-Guarantor                  Subsidiaries** |   | **Eliminations** |   | **Consolidated** |   |
| Net                  cash (used in) provided by operating activities of continuing                  operations   |   | $                                                 | (16,576  | ) | $ | 7,854 |   | $ | 5,961 |   | $ | - |   | $ | (2,761 | ) |
| Net                  cash provided by (used in) operating activities of discontinued                  operations |   |                                              | -        |   |   | 8,844 |   |   | (476 | ) |   | - |   |   | 8,368 |   |
| Cash                  flows from investing activities:                                                           |   |                                              |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds                  from sale of assets                                                                    |   |                                              | -        |   |   | 546 |   |   | - |   |   | - |   |   | 546 |   |
| Purchases                  of property, plant and equipment                                                      |   |                                              | -        |   |   | (8,075 | ) |   | (1,239 | ) |   | - |   |   | (9,314 | ) |
| Net                  cash used in investing activities of continuing operations                                  |   |                                              | -        |   |   | (7,529 | ) |   | (1,239 | ) |   | - |   |   | (8,768 | ) |
| Net                  cash used in investing activities of discontinued                  operations               |   |                                              | -        |   |   | (8,281 | ) |   | (540 | ) |   | - |   |   | (8,821 | ) |
| Cash                  flows from financing activities:                                                           |   |                                              |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deferred                  financing                                                                              |   |                                              | (4,096   | ) |   | - |   |   | - |   |   | - |   |   | (4,096 | ) |
| Payments                  on short-term debt                                                                     |   |                                              | -        |   |   | - |   |   | (782 | ) |   | - |   |   | (782 | ) |
| Payments                  on long-term debt                                                                      |   |                                              | -        |   |   | (41 | ) |   | (271 | ) |   | - |   |   | (312 | ) |
| 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   |   |   | (41 | ) |   | (1,053 | ) |   | - |   |   | 15,233 |   |
| Net                  cash (used in) provided by financing activities of discontinued                  operations |   |                                              |     |   |   | (837 | ) |   | (40 | ) |   |   |   |   | (877 | ) |
| Effect                  of exchange rate changes on cash                                                         |   |                                              | -        |   |   | - |   |   | 270 |   |   | - |   |   | 270 |   |
| Net                  cash provided by continuing operations                                                      |   |                                              | (249     | ) |   | 284 |   |   | 3,939 |   |   | - |   |   | 3,974 |   |
| Net                  cash (used in) provided by discontinued operations                                          |   |                                              | -        |   |   | (274 | ) |   | (1,056 | ) |   | - |   |   | (1,330 | ) |
| Net                  (decrease) increase in cash and cash equivalents                                            |   |                                              | (249     | ) |   | 10 |   |   | 2,883 |   |   | - |   |   | 2,644 |   |
| Cash                  and cash equivalents, at beginning of period                                               |   |                                              | 1,318    |   |   | 23 |   |   | 1,883 |   |   | - |   |   | 3,224 |   |
| Cash                  and cash equivalents, at end of period                                                     |   | $                                                 | 1,069    |   | $ | 33 |   | $ | 4,766 |   | $ | - |   | $ | 5,868 |   |

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

|                                                                  |   | **March                  31,** |       | **June                  30,** |   | **September                  30,** |   | **December                  31,** |       | **March                  31,** |   | **June                  30,** |    | **September                  30,** |   | **December                  31,** |   |
|-----------------------------------------------------------------------|--------|--------------------------------|------------|-------------------------------|--------|------------------------------------|--------|-----------------------------------|------------|--------------------------------|--------|-------------------------------|---------|------------------------------------|--------|-----------------------------------|--------|
|                                                                  |   | **2006**                       |       | **2006**                      |   | **2006**                           |   | **2006**                          |       | **2005**                       |   | **2005**                      |    | **2005**                           |   | **2005**                          |   |
| Net                  sales                                            |   | **$**                          | **52,817** |                          | **$**  | **53,496**                         |   | **$**                             | **52,956** |                           | **$**  | **52,781**                    |    | $                                  | 49,272 |                              | $      | 49,661 |   | $ | 43,674 |   | $ | 39,251 |   |
| Gross                  profit                                         |   |                           | **9,052**  |                          |   | **11,664**                         |   |                              | **14,758** |                           |   | **11,913**                    |    |                               | 13,994 |                              |   | 13,144 |   |   | 6,760 |   |   | 2,763 |   |
| Income                  (loss) from continuing operations             |   |                           | **(1,496** | **)**                         |   | **482**                            |   |                              | **1,401**  |                           |   | **(2,361**                    | **)**   |                               | 456    |                              |   | 555 |   |   | (2,385 | ) |   | (4,210 | ) |
| Discontinued                  operations, net of tax                  |   |                           | **1,900**  |                          |   | **1,423**                          |   |                              | **703**    |                           |   | **917**                       |    |                               | 1,488  |                              |   | 1,150 |   |   | 692 |   |   | 910 |   |
| Net                  income (loss)                                    |   | **$**                          | **404**    |                          | **$**  | **1,905**                          |   | **$**                             | **2,104**  |                           | **$**  | **(1,444**                    | **)**   | $                                  | 1,944  |                              | $      | 1,705 |   | $ | (1,693 | ) | $ | (3,300 | ) |
| Basic                  earnings (loss) per share:                     |   |                           |       |                          |   |                               |   |                              |       |                           |   |                          |    |                               |   |                              |   |   |   |   |   |   |   |   |   |
| Earnings                  (loss) per share from continuing operations |   | **$**                          | **(0.17**  | **)**                         | **$**  | **0.05**                           |   | **$**                             | **0.15**   |                           | **$**  | **(0.26**                     | )  | $                                  | 0.05   |                              | $      | 0.05 |   | $ | (0.27 | ) | $ | (0.47 | ) |
| Discontinued                  operations                              |   |                           | **0.21**   |                          |   | **0.16**                           |   |                              | **0.08**   |                           |   | **0.10**                      |    |                               | 0.17   |                              |   | 0.13 |   |   | 0.08 |   |   | 0.10 |   |
| Net                  earnings (loss) per basic share                  |   | **$**                          | **0.04**   |                          | **$**  | **0.21**                           |   | **$**                             | **0.23**   |                           | **$**  | **(0.16**                     | )  | $                                  | 0.22   |                              | $      | 0.18 |   | $ | (0.19 | ) | $ | (0.37 | ) |
| Diluted                  earnings (loss) per share:                   |   |                           |       |                          |   |                               |   |                              |       |                           |   |                          |    |                               |   |                              |   |   |   |   |   |   |   |   |   |
| Earnings                  (loss) per share from continuing operations |   | **$**                          | **(0.16**  | **)**                         | **$**  | **0.05**                           |   | **$**                             | **0.14**   |                           | **$**  | **(0.26**                     | **)**   | $                                  | 0.05   |                              | $      | 0.05 |   | $ | (0.27 | ) | $ | (0.47 | ) |
| Discontinued                  operations                              |   |                           | **0.20**   |                          |   | **0.15**                           |   |                              | **0.08**   |                           |   | **0.10**                      |    |                               | 0.16   |                              |   | 0.12 |   |   | 0.08 |   |   | 0.10 |   |
| Net                  earnings (loss) per diluted share                |   | **$**                          | **0.04**   |                          | **$**  | **0.20**                           |   | **$**                             | **0.22**   |                           | **$**  | **(0.16**                     | **)**   | $                                  | 0.21   |                              | $      | 0.17 |   | $ | (0.19 | ) | $ | (0.37 | ) |

**Schedule      II - Valuation and Qualifying Accounts**

|                                                        |   | **Balance                  at Beginning of Year** |      | **Additions                  Charged to Costs and Expenses** |   | **Deductions** |   |   | **Balance                  at End of Year** |   |
|-------------------------------------------------------------|--------|---------------------------------------------------|-----------|--------------------------------------------------------------|--------|----------------|--------|--------|---------------------------------------------|--------|
| Year                  ended December 31, 2006:              |   |                                              |      |                                                         |   |           |   |   |                                        |   |   |   |   |   |
| Allowance                  for uncollectible accounts       |   | **$**                                             | **676**   |                                                         | **$**  | **683**        |   | **$**  | **307**                                     | **(1** | **)** | **$** | **1,052** |   |
| Slow                  moving and obsolete inventory reserve |   |                                              | **2,902** |                                                         |   | **1,240**      |   |   | **70**                                      | **(2** | **)** |   | **4,072** |   |
|                                                        |   |                                              |      |                                                         |   |           |   |   |                                        |   |   |   |   |   |
| Year                  ended December 31, 2005:              |   |                                              |      |                                                         |   |           |   |   |                                        |   |   |   |   |   |
| Allowance                  for uncollectible accounts       |   | $                                                 | 483       |                                                         | $      | 424            |   | $      | 231                                         | (1     | ) | $ | 676 |   |
| Slow                  moving and obsolete inventory reserve |   |                                              | 2,244     |                                                         |   | 1,099          |   |   | 441                                         | (2     | ) |   | 2,902 |   |
|                                                        |   |                                              |      |                                                         |   |           |   |   |                                        |   |   |   |   |   |
| Year                  ended December 31, 2004:              |   |                                              |      |                                                         |   |           |   |   |                                        |   |   |   |   |   |
| Allowance                  for uncollectible accounts       |   | $                                                 | 253       |                                                         | $      | 364            |   | $      | 134                                         | **(1** | **)** | $ | 483 |   |
| Slow                  moving and obsolete inventory reserve |   |                                              | 2,251     |                                                         |   | 617            |   |   | 624                                         | **(2** | **)** |   | 2,244 |   |

| (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, EXECUTIVE OFFICERS AND CORPORATE      GOVERNANCE**

**ITEM      11. EXECUTIVE COMPENSATION**

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

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

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

**PART        IV**

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

| 1.   | The                following consolidated financial statements of Hawk Corporation are                filed                as part of this report under Item 8 - Financial Statements and                Supplementary Data: |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.   | Schedule                II - Valuation and Qualifying Accounts for the years ended December                31,                2006, 2005 and 2004 |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 | Amendment                    No. 1 to Credit and Security Agreement made as of August 31,                    2006 among                    Hawk Corporation, Allegheny Clearfield, Inc., Friction Products                    Co., Hawk                    MIM, Inc., Hawk Motors, Inc., Hawk Precision Components Group,                    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,                    the Lenders                    listed on the signature pages thereto, and KeyBank National Association,                    as Administrative Agent and LC Issuer (Incorporated by reference                    to the                    Company’s Form 8-K as filed on September 1, 2006 with the Securities                    and                    Exchange Commission) |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.9 | Amendment                    No. 2 to Credit and Security Agreement made as of August 31,                    2006 among                    Hawk Corporation, Allegheny Clearfield, Inc., Friction Products                    Co., Hawk                    MIM, Inc., Hawk Motors, Inc., Hawk Precision Components Group,                    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,                    the Lenders                    listed on the signature pages thereto, and KeyBank National Association,                    as Administrative Agent and LC Issuer (Incorporated by reference                    to the                    Company’s Form 8-K as filed on February 8, 2007 with the Securities and                    Exchange Commission) |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.10 | 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) |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.11 | 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) |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.12 | 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) |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.13 | 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) |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.14 | 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) |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.15 | 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)) |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.16 | 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                        (Incorporated by reference to the Company’s Form 10-K for the period ended                        December 31, 2005 as filed with the Securities and Exchange                        Commission) |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.17 | Notice                      of Termination of Amended and Restated Sales Plan, dated March                      22, 2006,                      between Norman C. Harbert and Northern Trust Securities,                      Inc. |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.18 | 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) |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.19 | 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) |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.20 | 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 quarterly                    period ended December 31, 2001 as filed with the Securities and                    Exchange                    Commission) |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.21 | Senior                    Advisor Agreement, dated as of October 18, 2005 by and between                    the Company                    and Norman C. Harbert (Incorporated by reference to the Company’s Form                    10-Q for the quarterly period ended June 30, 2005 as filed with                    the                    Securities and Exchange Commission) |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.22 | Employment                    Agreement, dated August 14, 2006, by and between Hawk Corporation                    and                    Joseph J. Levanduski (Incorporated by reference to the Company’s Form 10-Q                    for the quarterly period ended June 30, 2006 as filed with the                    Securities                    and Exchange Commission) |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.23 | Amendment                    to Agreements, dated November 10, 2006, between Hawk Corporation                    and                    Joseph J. Levanduski (Incorporated by reference to the Company’s Form 10-Q                    for the quarterly period ended September 30, 2006 as filed with                    the                    Securities and Exchange Commission) |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.24 | Employment                    Agreement, dated August 14, 2006, by and between Wellman Products                    Group,                    Inc. and B. Christopher DiSantis (Incorporated by reference to                    the                    Company’s Form 10-Q for the quarterly period ended June 30, 2006 as filed                    with the Securities and Exchange                    Commission) |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.25 | Amendment                    to Agreements, dated November 10, 2006, among Hawk Corporation,                    Wellman                    Products Group, Inc. and B. Christopher DiSantis (Incorporated                    by                    reference to the Company’s Form 10-Q for the quarterly period ended                    September 30, 2006 as filed with the Securities and Exchange                    Commission) |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.26 | Form                    of Change in Control Agreement among Hawk and certain executive                    officers                    (Incorporated by reference to the Company’s Form 10-Q for the quarterly                    period ended June 30, 2006 as filed with the Securities and Exchange                    Commission) |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.27 | Agreement,                    Release and Waiver between Steven J. Campbell and Hawk Corporation                    dated                    January 23, 2007 (Incorporated by reference to the Company’s Form 8-K as                    filed on January 30, 2007 with the Securities and Exchange                    Commission) |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 14 | Code                    of Business Conduct and Ethics (Incorporated by reference to                    the Company’s                    Form 10-K for the period ended December 31, 2003 as filed with                    the                    Securities and Exchange Commission) |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 21.1* | Subsidiaries                    of the Registrant |
|-------|---------------------------------------------------|

| 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                23, 2007 |
| Ronald                E. Weinberg                                        | Officer,                President and Director              |                          |
|                                                                     | (principal                executive officer)                |                          |
|                                                                     |                                                        |                          |
| /s/                Norman                C. Harbert                 | Chairman                Emeritus,                           | March                23, 2007 |
| Norman                C. Harbert                                         | Founder                and Director                         |                          |
|                                                                     |                                                        |                          |
| /s/                Joseph                J. Levanduski              | Chief                Financial Officer                      | March                23, 2007 |
| Joseph                J. Levanduski                                      | (principal                financial and accounting officer) |                          |
|                                                                     |                                                        |                          |
| /s/                Byron                S. Krantz              | Secretary                and Director                       | March                23, 2007 |
| Byron                S. Krantz                                           |                                                        |                          |
|                                                                     |                                                        |                          |
| /s/                Paul                R. Bishop               | Director                                                    | March                23, 2007 |
| Paul                R. Bishop                                            |                                                        |                          |
|                                                                     |                                                        |                          |
| /s/                Jack                F. Kemp                 | Director                                                    | March                23, 2007 |
| Jack                F. Kemp                                              |                                                        |                          |
|                                                                     |                                                        |                          |
| /s/                Dan                T. Moore,                III  | Director                                                    | March                23, 2007 |
| Dan                T. Moore, III                                         |                                                        |                          |
|                                                                     |                                                        |                          |
| /s/                Andrew                T. Berlin                  | Director                                                    | March                23, 2007 |
| Andrew                T. Berlin                                          |                                                        |                          |