EXHIBIT 13






                                [Intricon Logo]
                             ---------------------
                               2004 ANNUAL REPORT









<PAGE>


INTRICON, FORMERLY SELAS CORPORATION OF AMERICA

Headquartered in Arden Hills, Minnesota, IntriCon Corporation is an
international firm that designs, develops, engineers and manufactures
micro-miniature medical and electronic products. The Company supplies
micro-miniaturized components, systems and molded plastic parts, primarily to
the hearing instrument manufacturing industry, as well as the computer,
electronics, telecommunications and medical equipment industries. In addition to
its Arden Hills headquarters, the Company has facilities in Minnesota,
California, Singapore, and Germany. Within discontinued operations, the Company
had facilities in Pennsylvania, Japan and Germany. See note 5 to the
consolidated financial statements for a discussion of net sales and long-lived
assets by geographic area for 2004, 2003, and 2002.

Currently, the Company has one operating segment, its precision miniature
medical and electronics products segment. In the past the Company had operated
three segments, precision miniature medical and electronics products segment,
heat technology segment, and tire holders, lifts and related products segment.
In 2001, the Company began focusing on its precision miniature medical and
electronics products segment and developing plans to exit the businesses that
comprised the heat technology segment, and tire holders, lifts and related
products segment. The Company exited the tire holders, lifts and related
products business in 2003 and exited the heat technology segment in the first
quarter of 2005. For fiscal year 2004, the Company classified its heat
technology segment as discontinued operations.

The Company manufactures microminiature components, systems and molded plastic
parts for hearing instrument, medical equipment, electronics, telecommunications
and computer industry manufacturers. These components consist of volume
controls, microphones, trimmer potentiometers and switches. The Company also
manufactures hybrid amplifiers and integrated circuit components ("hybrid
amplifiers"), along with faceplates for in-the-ear and in-the-canal hearing
instruments. Components are offered in a variety of sizes, colors and capacities
in order to accommodate a hearing manufacturer's individualized specifications.
Sales to hearing instrument manufacturers represented approximately 52 percent
of 2004 annual net sales for the Company's precision miniature medical and
electronic products business.

In the medical market, the Company is focused on sales of microelectronics,
micromechanical assemblies and high-precision plastic molded components to
medical device manufacturers. Targeted customers include medical product
manufacturers of portable and lightweight battery powered devices, large
AC-powered units often found in clinics and hospitals, as well as a variety of
sensors designed to connect a patient to an electronic device.

The medical industry is faced with pressures to reduce the costs of healthcare.
The Company offers medical manufacturers the capabilities to design, develop and
manufacture components for medical devices that are easier to use, measure with
greater accuracy and provide more functions while reducing the costs to
manufacture these devices. Examples of the Company's products used by medical
device manufacturers include components found in intravenous fluid
administration pumps that introduce drugs into the bloodstream. The Company
manufacturers and supplies bubble sensors and flow restrictors that monitor and
control the flow of fluid in an intravenous infusion system.

The Company also manufactures a family of safety needle products for an OEM
customer that utilizes the Company's insert and straight molding capabilities.
These products are assembled using full automation including built-in quality
checks within the production lines. Other examples include sensors used to
detect pathologies in specific organs of the body and monitoring devices to
detect cardiac and respiratory functions. The early and accurate detection of
pathologies allows for increased likelihood for successful treatment of chronic
diseases and cancers. Accurate monitoring of multiple functions of the body,
such as heart rate and breathing, aids in generating more accurate diagnosis and
treatments for patients.

The Company has also expanded its microminiature components business through the
manufacture of thermistors and film capacitors. The Company manufactures and
sells thermistors and thermistor assemblies, which are solid state devices that
produce precise changes in electrical resistance as a function of any change in
absolute body temperature. The Company's Surge-Gard TM product line, an inrush
electric current limiting device used primarily in computer power supplies,
represented approximately 5 percent of the Company's sales in 2004. The balance
of sales represents various industrial, commercial and military sales for
thermistor and thermistor assemblies to domestic and international markets.


<PAGE>


In 2004 and 2002 no one customer accounted for more than 10 percent of the
Company's consolidated net sales. During 2004 the top five customers accounted
for approximately $12 million or 34 percent of the Company's consolidated net
sales. In 2003, Sonic Innovations, one of the Company's hearing-health customers
accounted for $4.5 million or 12.4 percent of the Company's consolidated net
sales.

In 2004, the Company's foreign operations were conducted in Singapore, Germany,
and Japan. Approximately 12 percent of the Company's revenues were derived from
these countries in 2004. Currently the Company operates in Singapore and
Germany, political or economic instability in these countries could have an
adverse impact on the Company's results of operations due to diminished revenues
in these countries. The Company's future revenues, costs of operations and
profit results could be affected by a number of factors related to the Company's
international operations, including changes in foreign currency exchange rates,
changes in economic conditions from country to country, changes in a country's
political condition, trade protection measures, licensing and other legal
requirements and local tax issues. Unanticipated currency fluctuations in the
Euro and Singapore Dollar could lead to lower reported consolidated revenues due
to the translation of these currencies into U.S. dollars when the Company
consolidates its revenues.


RECENT DEVELOPMENTS

SALE OF BURNERS AND COMPONENTS BUSINESS - In the first quarter of 2005, the
Company sold the remainder of its Heat Technology segment. The total purchase
price was approximately $3.6 million, subject to adjustment, of which
approximately $2.7 million was paid in cash and $900,000 was paid in the form of
a subordinated promissory note. This segment consisted of the operating assets
and liabilities of Selas Corporation of America (Dresher, Pennsylvania), Nippon
Selas (Tokyo, Japan) and Selas Waermetechnik GmbH (Ratingen, Germany). This
business was classified as a discontinued operation in 2004. For more detailed
information, see note 3 to the Consolidated Financial Statements included
herein.

MAJOR EVENTS IN 2004

SALE OF DRESHER PROPERTY - On June 23, 2004, the Company completed the sale of
its property in Dresher, PA, to BT Limekiln LP, a Pennsylvania limited
partnership, for approximately $3.6 million in cash, net of expenses. A gain of
$3.1 million was recognized on the sale. The property was the headquarters for
the Company's discontinued Heat Technology business and was previously
classified as an asset held for sale on the Company's consolidated balance
sheet. In connection with the sale, the Company leased back the property for a
term of nine months at a base rental of $20,000 per month, plus expenses.
Proceeds of the sale were used to reduce the Company's outstanding bank debt.

REDUCTION OF OVERHEAD - In 2004, the Company experienced weakness in the hearing
health markets. The weakness was due to competitive pricing pressures, customer
inventory management programs resulting in more just-in-time inventory, and
unfavorable legislation in the German market reducing the reimbursement amount
for the purchase of hearing aids. These factors resulted in both reduced sales
and lower product margins. In an effort to return to operating profitability,
the Company took steps in 2004 to reduce its overhead. These steps included the
elimination of several management and other support positions, resulting in an
annualized savings of over $3 million.

REACQUISITION OF SELAS WAERMETECHNIK - In the third quarter of 2004, the Company
reacquired Selas Waermetechnik GmbH, which was previously part of Selas SAS.
Selas SAS filed insolvency in July of 2003. Since that time, Selas Waermetechnik
GmbH was under the control of a French court administrator. The Company owned
the rights to the Selas name and the technology for the European market. This
enabled the Company to reacquire the subsidiary for the minimal amount of
$10,500 and record an extraordinary gain within discontinued operations of
approximately $684,000 on the acquisition. The Company sold this subsidiary
during the first quarter of 2005, as part of its Burners and Components
business; therefore it has classified the subsidiary as a discontinued
operation.

MAJOR EVENTS IN 2003

SALE OF DEUER MANUFACTURING - In July 2003, the Company completed the planned
sale of its Tire Holders, Lifts and Related Products segment. This segment
consisted of one wholly owned subsidiary, Deuer Manufacturing Inc. (Deuer),
which operated on a stand-alone basis. In 2003, prior to its sale, Deuer
generated approximately $8.5 million of revenue and $8,000 in net income. The
net purchase price of $6.6 million was determined by negotiations between the
parties. The Company recognized a gain of approximately $1.5 million, net of
tax,


                                       1
<PAGE>

on the transaction. Proceeds from the transaction were used primarily to reduce
the Company's outstanding bank debt. The Company classified the subsidiary as a
discontinued operation beginning in December 2002. For more detailed
information, see note 3 to the Consolidated Financial Statements included
herein.

INSOLVENCY OF FRENCH SUBSIDIARY - Selas SAS, the Company's then French
subsidiary, filed insolvency in France in July 2003 after four consecutive
quarters of substantial losses. Under French law, Selas SAS is now under the
control of a French insolvency court administrator. Because Selas SAS and its
subsidiaries are no longer under the control of The Company, its results of
operations are excluded from the Company's continuing operations and the
Company's historical financial information has been restated to reflect these
subsidiaries as discontinued operations. For more detailed information, see note
3 to the Consolidated Financial Statements included herein.

MARKET AND DIVIDEND INFORMATION

                            2004                               2003
                 --------------------------         -------------------------
                           Market                             Market
                        Price Range                        Price Range
                 --------------------------         -------------------------

Quarter                   High         Low                   High        Low
   First.........        $3.60       $2.82                  $1.89      $1.29
   Second........         3.24        2.36                   1.62       1.15
   Third.........         2.99        1.40                   1.95       1.40
   Fourth........         2.40        1.70                   3.85       1.58

At March 25, 2005, the Company had 378 shareholders of record.

There were no cash dividends declared in 2004 or 2003. The payment of any future
cash dividends is subject to the discretion of the Board of Directors and is
dependent on a number of factors, including the Company's capital requirements,
financial condition, financial covenants and cash availability. The Company
ceased paying quarterly cash dividends in the fourth quarter of 2001 and has no
intention of paying cash dividends in the foreseeable future. Terms of the
Company's banking agreements prohibit the payment of cash dividends without
prior bank approval.

THE COMMON STOCK OF THE COMPANY IS LISTED ON THE AMERICAN STOCK EXCHANGE UNDER
THE SYMBOL "SLS". THE COMPANY EXPECTS THAT ITS COMMON SHARES WILL BEGIN TRADING
UNDER THE SYMBOL "IIN" ON OR AFTER APRIL 4, 2005.



                                       2
<PAGE>


FINANCIAL HIGHLIGHTS

YEARS ENDED DECEMBER 31,                             2004 (a)        2003(a,b)
                                                    (RESTATED)      (restated)

Sales, net.....................................   $ 35,183,000    $ 36,202,000
                                                  ============    ============

Loss from continuing operations,
  net of income taxes..........................     (1,905,000)     (4,032,000)

Income (loss) from discontinued
  operations, net of income taxes..............      1,369,000      (1,013,000)

Extraordinary gain from discontinued operations        684,000              --
                                                  ------------    ------------

Net income (loss)..............................   $    148,000    $ (5,045,000)
                                                  ============    ============


Basic earnings (loss) per share:
    Continuing operations......................   $       (.37)   $       (.78)
    Discontinued operations....................            .27            (.20)
    Extraordinary gain
       discontinued operations.................            .13              --
                                                  ------------    ------------
    Net income (loss)..........................   $        .03    $       (.98)
                                                  ============    ============
Diluted income (loss) per share:
    Continuing operations......................   $       (.37)   $       (.78)
    Discontinued operations....................            .27            (.20)
    Extraordinary gain discontinued
       operations..............................            .13              --
                                                  ------------    ------------
    Net income (loss)..........................   $        .03    $       (.98)
                                                  ============    ============

Working capital................................   $  2,183,000    $    245,000
Total assets...................................   $ 30,939,000    $ 34,729,000
Total shareholders' equity.....................   $ 12,128,000    $ 11,807,000


(a)      See note 2 to the Company's consolidated financial statement included
         herein for information pertaining to the restatement of earnings.

(b)      For 2003, the Company reclassified its remaining Heat Technology
         business which consisted of the burners and components portion of the
         business as discontinued operations. The Company sold this portion of
         the business in the first quarter of 2005. For 2004 and 2003, the Heat
         Technology business had revenues of $9.7 and $18.4 million,
         respectively, with net income of $2.1 million for 2004 and a net loss
         of $2.5 million for 2003. The Tire Holders, Lifts and Related Products
         business that was sold in July 2003 is also included in discontinued
         operations. For 2003, this segment had revenue of $8.5 million, and net
         income of $8,000.



                                       3
<PAGE>
















         [For purposes of this amendment, the Chief Executive Officer's
                           letter has been deleted.]














                                       4

<PAGE>

<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF OPERATIONS*
(IN THOUSANDS, EXCEPT FOR PER SHARE AND SHARE DATA)

Years ended December 31,                               2004(a)      2003(a,b)        2002(a)        2001(a)        2000(a)
                                                     (RESTATED)     (restated)     (restated)     (restated)     (restated)
<S>                                                <C>            <C>            <C>            <C>            <C>

Sales, net......................................   $    35,183    $    36,202    $    34,975    $    37,787    $    39,663

Cost of sales...................................        27,121         27,638         26,811         27,808         27,901

Operating expenses..............................        11,535         11,457         10,484         10,764          9,409
Interest expense................................           465            533            720            713            739
Interest income.................................            (2)            (8)           (34)           (80)           (25)
Gain on sale of asset...........................         3,110             --             --             --             --
Other (income) expense, net.....................           (61)           130            (31)            87              8
                                                   -----------    -----------    -----------    -----------    -----------
Income (loss) from continuing operations before
    income taxes, discontinued operations
    and change in accounting principle..........          (765)        (3,548)        (2,975)        (1,505)         1,631
Income tax expense (benefit)....................         1,140            484         (1,160)          (451)           651
                                                   -----------    -----------    -----------    -----------    -----------
    Income (loss) from continuing operations
    before discontinued operations and change in
    accounting principle........................        (1,905)        (4,032)        (1,815)        (1,054)           980
Income (loss) from discontinued
    operations, net of income taxes (note 3)....         1,369         (1,013)       (10,544)        (3,843)         1,943

Extraordinary gain from discontinued operation..           684             --             --             --             --
                                                   -----------    -----------    -----------    -----------    -----------
Cumulative effect of change in
    accounting principle........................            --             --         (9,428)            --             --
                                                   -----------    -----------    -----------    -----------    -----------

Net income (loss)...............................   $       148    $    (5,045)   $   (21,787)   $    (4,897)   $     2,923
                                                   ===========    ===========    ===========    ===========    ===========

Basic earnings (loss) per share:
    Continuing operations.......................   $      (.37)   $      (.78)   $      (.35)   $      (.21)   $       .19
    Discontinued operations.....................           .27           (.20)         (2.06)          (.75)           .38
    Extraordinary gain discontinued
       operations...............................           .13             --             --             --             --
    Accounting principle change.................            --             --          (1.84)            --             --
                                                   -----------    -----------    -----------    -----------    -----------
    Net income (loss)...........................   $       .03    $      (.98)   $     (4.25)   $      (.96)   $       .57
                                                   ===========    ===========    ===========    ===========    ===========

Diluted earnings (loss) per share:
    Continuing operations.......................   $      (.37)   $      (.78)   $      (.35)   $      (.21)   $       .19
    Discontinued operations.....................           .27           (.20)         (2.06)          (.75)           .38
    Extraordinary gain discontinued operations..           .13             --             --             --             --
    Accounting principle change.................            --             --          (1.84)            --             --
                                                   -----------    -----------    -----------    -----------    -----------
    Net income (loss)...........................   $       .03    $      (.98)   $     (4.25)   $      (.96)   $       .57
                                                   ===========    ===========    ===========    ===========    ===========

Weighted average number of Shares
outstanding during year:

Basic...........................................     5,129,214      5,124,433      5,119,214      5,119,214      5,121,513
                                                   ===========    ===========    ===========    ===========    ===========
Diluted.........................................     5,131,841      5,124,433      5,119,214      5,119,214      5,134,494
                                                   ===========    ===========    ===========    ===========    ===========
</TABLE>


                                       5
<PAGE>

<TABLE>
<CAPTION>
OTHER FINANCIAL HIGHLIGHTS*
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

YEARS  ENDED  DECEMBER 31,           2004(a)     2003(a,b)      2002(a)       2001(a)        2000(a)
                                   (RESTATED)   (restated)    (restated)    (restated)     (restated)
<S>                                <C>           <C>           <C>           <C>           <C>

Working capital.................   $  2,183      $    245      $  4,711      $ 16,572      $ 21,525

Total assets....................   $ 30,939      $ 34,729      $ 63,936      $ 86,513      $ 96,974

Long-term debt..................   $     --      $     --      $  2,415      $  2,568      $  1,882

Shareholders' equity:
    Capital stock and additional
       paid-in capital..........   $ 17,670      $ 17,670      $ 17,648      $ 17,648      $ 17,648
    Retained earnings
      (accumulated deficit).....     (3,680)       (3,828)        1,216        23,004        28,592
    Accumulated other
       comprehensive loss.......       (597)         (770)       (1,525)       (1,008)         (555)

    Treasury stock..............     (1,265)       (1,265)       (1,265)       (1,265)       (1,265)
                                   --------      --------      --------      --------      --------
    Total shareholders' equity..   $ 12,128      $ 11,807      $ 16,074      $ 38,379      $ 44,420

Depreciation and amortization...   $  2,289      $  2,387      $  2,452      $  3,354      $  3,014

Dividends per share.............   $     --      $     --      $     --      $    .18      $    .18
</TABLE>



* See note 14 to the Company's consolidated financial statements included herein
  for quarterly results of operations.

(a)  See note 2 to the Company's consolidated financial statements included
     herein for information pertaining to the restatement of earnings.

(b)  The Company has reclassified two of its business segments as discontinued
     operations. This includes the entire Heat Technology business, including
     the large custom-engineered furnace portion of this segment, which was sold
     in 2002, and the burners and components portion of the segment which the
     Company sold in the first quarter of 2005. The Company's Tire Holders,
     Lifts and Related Products business that was sold in July of 2003 is also
     included in discontinued operations. Accordingly, the historical financial
     information has been reclassified. See note 3 to the Consolidated Financial
     Statements.



                                       6
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company has not amended and does not intend to amend its previously filed
Form 10K for the fiscal year ended December 31,2003 or its previously filed
Annual Reports on Form10-k or Quarterly Reports on Form 10-Q for the periods
affected by the Restatement that ended prior to December 31,2004. For this
reason the consolidated financial statements, auditors' reports and related
financial information for the affected periods contained in such reports should
no longer be relied upon. However, we have restated the financial information
for 2000 and 2001 presented in "Other Financial Highlights" of this report.

We have restated our consolidated financial statements for the years 2000
through 2004 (the "Restatement"). The determination to restate these financial
statements was made after errors were discovered in May, 2005. In addition,
certain disclosures in other notes to our consolidated financial statements have
been restated to reflect the Restatement adjustments. In the Restatement, we
have:

o    Corrected the accounting for certain research and development expenditures
     that were erroneously capitalized to the balance sheet by recording charges
     to the statement of operations.
o    Reversed amortization expense related to the erroneously capitalized
     research and development expenditures.
o    Adjusted income tax reserves as a result of the changes to pre-tax income
     relating to the correction of accounting for certain research and
     development expenditures noted above.

The Restatement narrative below includes only the 2002, 2003, and 2004 audited
amounts as well as the impact of prior period Restatement amounts on beginning
retained earnings at January 1, 2002.

The Restatement reduced our earnings before income taxes for 2002 and 2003 by
$314,000 and $97,000, respectively. For 2004, the Restatement increased our
earnings before income taxes by $49,000.

The 2002 Restatement was comprised of a $24,000 reduction in cost of sales to
reverse amortization expense and a $338,000 charge to research and development
expense to reverse capitalized research and development costs. The 2003
Restatement was comprised of a $347,000 reduction in cost of sales to reverse
amortization expense, a $37,000 charge to general and administrative expense to
reverse capitalized engineering support costs, and a $408,000 charge to research
and development expense to reverse capitalized research and development costs.
The 2004 Restatement was comprised of a $193,000 reduction in cost of sales to
reverse amortization expense, a $15,000 charge to general and administrative
expense to reverse capitalized engineering support costs, and a $129,000 charge
to research and development expense to reverse capitalized research and
development costs.

The Restatement decreased beginning retained earnings for the year ended
December 31, 2002 presented on our consolidated statements of stockholders'
equity from $23,297,000 as previously reported to $23,004,000 as restated. This
$293,000 decrease, net of tax of $127,000 represented the cumulative impact of
restating 2000 and 2001 for the accounting errors described above.

The Restatement had no impact on historical cash balances or total cash flows
from operating, investing or financing activities for the years ended December
31, 2004 and 2003. The only impact on the consolidated statements of cash flows
was to reclassify certain amounts within the cash flow statement categories.

The primary impact of the above adjustments on the December 31, 2004 and
December 31, 2003 consolidated balance sheet was a reduction to property, plant
and equipment. Further information regarding the impact of these adjustments is
provided in Note 2.



OVERVIEW

The Company has embarked on a strategy to focus on its Precision Miniature
Medical and Electronics Products markets for future growth. Consistent with this
strategy, the following actions were taken in 2004:


                                       7
<PAGE>


BURNERS AND COMPONENTS BUSINESS - In the fourth quarter of 2003, the Company
initiated its plan to sell the remainder of its Heat Technology segment. This
segment consists of the operating assets of Selas Corporation of America
(Dresher, Pennsylvania) and Nippon Selas (Tokyo, Japan). The Company sold the
segment during the first quarter of 2005 and has classified the segment as a
discontinued operation and, accordingly, has reclassified the historical
financial data. For more detailed information, see note 3 to the Consolidated
Financial Statements included herein.

PROPERTY IN DRESHER, PENNSYLVANIA. - On June 23, 2004, the Company completed the
sale of its property in Dresher, PA, to BT Limekiln LP, a Pennsylvania limited
partnership, for approximately $3.6 million in cash, net of expenses. A gain of
$3.1 million was recognized on the sale. The property was the headquarters for
the Company's discontinued Heat Technology business and was previously
classified as an asset held for sale on the Company's consolidated balance
sheet. In connection with the sale, the Company leased back the property for a
term of nine months at a base rental of $20,000 per month, plus expenses.
Proceeds of the sale were used to reduce the Company's outstanding bank debt.

REDUCTION OF OVERHEAD - In 2004, the Company experienced weakness in the hearing
health markets. The weakness was due to competitive pricing pressures, customer
inventory management programs resulting in more just-in-time inventory, as well
as unfavorable legislation in the German market reducing the reimbursement
amount for the purchase of hearing aids. These factors resulted in both reduced
sales and lower product margins. In an effort to return to operating
profitability, the Company took steps in 2004 to reduce its overhead. These
steps included the elimination of several management and other support
positions, resulting in an annualized savings of over $3 million.

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

Certain statements included in this Annual Report to Shareholders or documents
the Company files with the Securities and Exchange Commission, which are not
historical facts, are forward-looking statements (as such term is defined in the
Securities Exchange Act of 1934, and the regulations thereunder), which are
intended to be covered by the safe harbors created thereby. These statements may
include, but are not limited to:

o  statements in the letter to shareholders, such as the Company's position
   and focus on the Company's core product lines, ability to compete, the
   potential for growth for the hearing health market, growth in the military
   and aviation markets, disposition of assets and the renaming of the Company;
o  statements in "Management's Discussion and Analysis of Financial Condition
   and Results of Operations" such as new digital products to gain market
   share, recovery of the telecommunications market, potential growth in the
   Company's medical profits, future gross profit margins, future cost
   savings, net operating loss carryforwards, the impact of future cash flows,
   the ability to maintain financial covenants, the ability to meet working
   capital requirements, future level of funding of employee benefit plans,
   the ability to negotiate extension on purchases, the impact of foreign
   currencies and litigation;
o  statements in "Notes to the Company's Consolidated Financial Statements;" and
o  statements in the Company's annual report on Form 10-K for the year ended
   December 31, 2004, in "Business", Legal Proceedings" and "Risk Factors",
   such as the Company's ability to focus on the precision miniature medical
   and electronics products business segment and exit the heat technology
   segment, the ability to compete, the adequacy of insurance coverage, and
   potential increase in demand for the Company's products.

Forward-looking statements include, without limitation, statements as to the
Company's:
o  expected future results of operations and growth;
o  ability to meet working capital requirements;
o  business strategy; o expected benefits from staff reductions;
o  expected increases in operating efficiencies;
o  anticipated trends in the hearing-health market related to the Company's
   Precision Miniature Medical and Electronic Products segment; and
o  estimates of goodwill impairments and amortization expense of other
   intangible assets.


                                       8
<PAGE>


In addition, forward-looking statements also include the effects of changes in
accounting pronouncements, the effects of litigation and the amount of insurance
coverage, and statements as to trends or the Company's or management's beliefs,
expectations and opinions. Forward-looking statements are subject to risks and
uncertainties and may be affected by various factors that may cause actual
results to differ materially from those in the forward-looking statements. In
addition to the factors discussed in this Annual Report to Shareholders, certain
risks, uncertainties and other factors can cause actual results and developments
to be materially different from those expressed or implied by such
forward-looking statements, including, without limitation, the following:

o  the ability to implement the Company's business strategy;
o  risks arising in connection with the insolvency of The Company SAS, and
   potential liabilities and actions arising in connection therewith;
o  the volume and timing of orders received by the Company;
o  changes in estimated future cash flows;
o  foreign currency movements in markets the Company services;
o  changes in the global economy and financial markets;
o  changes in the mix of products sold;
o  acceptance of the Company's products;
o  competitive pricing pressures;
o  pending and potential future litigation;
o  availability of electronic components for the Company's products;
o  ability to create and market products in a timely manner;
o  ability to pay debt when it comes due;
o  ability to sell businesses marked for sale; and
o  risks associated with terrorist attacks, war and threats of attacks and wars.

For a description of these and other risks see "Risk Factors" in the Company's
annual report on Form 10-K for the year ended December 31, 2004 or in other
filings the Company makes from time to time with the Securities and Exchange
Commission. The Company does not undertake to update any forward-looking
statement that may be made from time to time by or on behalf of the Company.





                                       9
<PAGE>


RESULTS OF OPERATIONS

2004 COMPARED WITH 2003

CONSOLIDATED NET SALES

Consolidated net sales for 2004 and 2003 were as follows (in thousands):

                                                                Change
                                                                ------
                              2004          2003        Dollars        Percent
                              ----          ----        -------        -------

Consolidated net sales.... $35,183       $36,202       $(1,019)         (2.8)%

The Company's sales continued to be impacted by weakness in its primary
hearing-health market. Competitive pricing issues, customer inventory reduction
efforts as well as unfavorable legislation in the German market, which reduced
the reimbursement amount to the end user for the purchase of hearing aids,
contributed to a 15 percent decrease in sales to the hearing-health market in
2004.

The Company also saw a decline of 15 percent in sales to the medical equipment
market in 2004. Sales to this market are extremely reliant on orders from two
customers, and are volatile depending on sales levels, inventory levels and
acceptance of these customer's end products. Medical products comprised $4.2
million, about 12 percent of the Company's 2004 consolidated net sales, compared
to $4.9 million or 13 percent in 2003.

The weakness in the hearing-health and medical equipment markets was partially
offset by increases in sales to the Company's remaining markets. Sales of the
Company's thermistor and capacitor products, into the telecommunication markets,
represented 20 percent of the Company's sales in 2004 increasing 17 percent
year-over-year as the overall world telecommunications market continued to
strengthen. Sales to the professional audio market represented 16 percent of the
Company's 2004 sales increasing 44 percent; 2004 sales to this market included a
$1.1 million order of helmets for the Singapore military.

Looking forward to 2005, the Company believes its new digital products will help
it gain market share in the hearing health market, as the product performance
has been rated exceptional. The telecommunications market seems to be recovering
and the Company expects sales to its medical equipment market to rebound.

GROSS PROFIT

Gross profit, both in dollars and as a percent of sales, for 2004 and 2003, were
as follows (in thousands):

                         2004                  2003                 Change
                         ----                  ----                 ------
                      (restated)            (restated)            (restated)
                       --------              --------              --------
                  Dollars    Percent    Dollars    Percent    Dollars    Percent
                  -------    -------    -------    -------    -------    -------

Gross profit....  $8,061      22.9%     $8,564      23.7%     $(503)      (.8)%

2004 gross margins decreased due to the lower overall sales volume, this
included a decrease in sales to the medical equipment products market, which
generally provides higher gross profit margins. The hearing-health product mix
continued shifting away from higher gross profit margins of mechanical
components to digital products, which typically have lower gross profit margins
for the Company. These factors were partially offset by lower inventory reserves
in 2004 when compared to 2003, along with an increase in sales of electronic
products, which generally have higher gross profit margins. Inventory
write-downs were $770,000 and $1.1 million in 2004 and 2003, respectively and
are the result of more specialized inventory, changes in product mix, and
shorter product life cycles particularly in the hearing health market. The
Company believes its gross profit margins in 2005 will be in the 23 to 26
percent range due to cost saving measures which have been implemented, including
staffing reductions, additional automation, shifting certain production to its


                                       10
<PAGE>

Singapore facility and changes in product mix including an anticipated rebound
of its medical product sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses (SG&A) for the years ended December
31, 2004 and 2003 were (in thousands):

<TABLE>
<CAPTION>
                                     2004                2003                  Change
                                     ----                ----                  ------
                                  (restated)          (restated)             (restated)
                                   --------            --------               --------
                                                                                   Year-over-
                                      Percent of            Percent of                year
                             Dollars    Sales     Dollars     Sales     Dollars    Incr.(Decr.)
                             -------    -----     -------     -----     -------    -----------
<S>                          <C>        <C>       <C>         <C>        <C>        <C>

Selling....................  $3,934     11.2%     $3,649      10.1%      $ 285        7.8%
Research and development...  $1,616      4.6%     $2,170       6.0%      $(554)     (25.5)%
Asset impairment...........  $  488      1.4%     $  379       1.0%      $ 109       28.8%
General and administrative.  $5,497     15.6%     $5,259      14.5%      $ 238        4.5%
</TABLE>

The higher SG&A expenses in 2004 were mainly attributable to an increase in
selling and administrative expense, partially offset by a decline in development
cost. The $285,000 increase in selling expense was mainly due to the hiring of a
sales and marketing manager for our medical products market and the associated
fees paid to a third party recruiter. Research and development decreased as a
result of an increase in customer funded development projects, as the Company
partners with its customers to bring new hearing health products to market. The
$238,000 increase in administrative expenses was mainly attributable to accruals
of severance cost in 2004, as the Company reduced its staff, to compensate for
the decline in sales.

IMPAIRMENT OF LONG-TERM ASSETS

In 2004, the Company recorded an impairment from abandonment of long-term assets
of $488,000 based on analysis of future cash flows; in 2003, an impairment from
abandonment of long-term assets of $379,000 was recorded. The 2004 abandonment
was mainly associated with technology having to do with the development of a
specific microphone for use in both the professional audio and hearing health
markets; management determined that due to external technological advances the
technology was no longer viable. The 2003 abandonment was due to previously
capitalized technology costs primarily related to microphone and headset
products for the professional audio-device market. These technology costs were
no longer considered to have future value.

NET INTEREST EXPENSE

Net interest expense for 2004 was $465,000 a decline of $68,000 from $533,000 in
2003. This was principally due to a reduction in the overall bank debt, offset
by an increase in interest rates. Total bank debt was $5.2 million at December
31, 2004 compared to $8.2 million December 31, 2003.

OTHER

In 2004, other income was $61,000 compared to other expense of $130,000 in 2003.
The difference principally stemmed from an exchange loss of $94,000 on Euro
denominated bank debt in 2003. There was no similar loss in 2004.

INCOME TAXES

Income taxes were as follows (in thousands):
                                                 2004                   2003
                                              (restated)             (restated)
                                               --------               --------
Income tax expense (benefit).................  $ 1,140                 $ 485
Percentage of pre-tax loss...................  (149.0%)               (13.6%)


                                       11
<PAGE>




The effective tax rate of (149.0%) percent compared to the U.S. Federal
statutory rate of 34 percent in 2004 was primarily due to three reasons:

-  The Company established an $890,000 valuation reserve against previously
   established tax assets as their realizability was uncertain due to the
   operating losses the Company has generated for the last three years;
-  The estimated 2003 Federal income tax refund was reduced by approximately
   $45,000 in alternative minimum tax; and
-  The Company generated taxable profits in its foreign operations and
   recognized income tax expense of approximately $196,000 related to those
   operations.

The Company estimates it has approximately $16.3 million of net operating loss
(NOL) carryforwards available to offset future federal income taxes.

DISCONTINUED OPERATIONS

The Company recorded a net profit (loss) from discontinued operations as follows
(in thousands):

                                                         2004          2003
                                                         ----          ----
Net income (loss) from Heat Technology Business....   $ 1,369       $(2,512)
Net income from Tire Holders, Lifts and
     related products segment......................        --         1,499

Extraordinary gain from discontinued operations....       684            --
                                                      -------       -------

Net income (loss) from discontinued operations.....   $ 2,053       $(1,013)
                                                      =======       =======

HEAT TECHNOLOGY SEGMENT

The 2004 net income was a result of the operating profits from its remaining
burners and components business, and an extraordinary gain from the
reacquisition of Selas Warmetechnik (see note 3 and note 4 in the consolidated
financial statements). The 2003 net loss from the Heat Technology business was
primarily the result of the insolvency filed in France by the Company's wholly
owned French subsidiary. This consisted of the European heat technology
operation remaining after the 2002 sale of the large custom-engineered furnace
business. The European loss in 2003 was partially offset by $110,000 of net
income from the remaining the Company's burner and component business with
locations in Dresher, Pennsylvania, and Tokyo, Japan. In the first quarter of
2005, the Company sold its remaining burner and component business for
approximately $3 million.

TIRE HOLDER, LIFTS AND RELATED PRODUCTS SEGMENT

The 2003 net income from the Tire Holder, Lifts and Related Products segment was
the combination of net income of $8,000 from Deuer Manufacturing, Inc. prior to
its sale In July 2003 and the approximately $1.5 million gain recognized from
the sale.


2003 COMPARED WITH 2002

CONSOLIDATED NET SALES

Consolidated net sales for 2003 and 2002 were as follows (in thousands):

                                                                 Change
                                                                 ------
                               2003          2002        Dollars        Percent
                               ----          ----        -------        -------
Consolidated net sales....  $36,202       $34,975         $1,227           3.5%


                                       12
<PAGE>


The Company's sales in 2003 were impacted by weakness in its primary
hearing-health market. Competitive pricing issues and a continued decline in
sales of component products contributed to a 5 percent decrease in sales to the
hearing-health market. Other contributing factors included a fourth-quarter
reduction in orders from two major customers, as they sought to lower their
inventory levels. The weakness in the hearing-health market was offset by gains
in other markets. Sales of the Company's Thermistor and Capacitor products into
the telecommunication markets increased 10 percent year-over-year as the overall
world telecommunications market strengthened.

The Company continued to expand its customer base in the medical equipment
market; the Company's sales to this market saw a 40 percent year-over-year
growth. Medical products comprised about 13 percent of the Company's 2003 sales,
compared to 10 percent in 2002.

GROSS PROFIT

Gross profit, both in dollars and as a percent of sales, for 2003 and 2002, were
as follows (in thousands):

                         2003                  2002                 Change
                         ----                  ----                 ------
                      (restated)            (restated)            (restated)
                       --------              --------              --------
                  Dollars    Percent    Dollars    Percent    Dollars    Percent
                  -------    -------    -------    -------    -------    -------

Gross profit..... $8,564      23.7%     $8,164       23.3%      $400        .4%

Although year over year sales increased by $1.2 million, gross profit remained
relatively flat as a percentage of sales in 2003, due primarily to an increase
in inventory reserves in 2003. The increase in inventory reserves of
approximately $1.1 million was the result of more specialized inventory, changes
in product mix, and shorter product life cycles. The hearing-health product mix
continued shifting away from higher gross profit margins of mechanical
components to digital products, which typically have lower gross profit margins
for the Company. These factors were partially offset by an increase in sales of
electronic products as well as medical products, which generally have higher
gross profit margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses (SG&A) for the years ended December
31, 2003 and 2002 were (in thousands):

<TABLE>
<CAPTION>
                                    2003                 2002                 Change
                                 (restated)           (restated)            (restated)
                                  --------             --------              --------
                                                                                  Year-over-
                                      Percent of            Percent of               year
                            Dollars     Sales     Dollars     Sales     Dollars   Incr.(Decr.)
                            -------     -----     -------     -----     -------   -----------
<S>                          <C>         <C>       <C>        <C>        <C>        <C>

Selling...................   $3,649      10.1%     $3,667     10.5%      $ (18)      (.5%)
Research and development..   $2,170       5.8%     $1,187      3.4%      $ 983      82.8%
Asset impairment..........   $  379       1.0%         --       --       $ 379        --
General and administrative   $5,259      14.7%     $5,630     16.1%      $(371)     (6.6%)
</TABLE>

The higher SG&A expenses in 2003 were mainly attributable to the significant
increase in research and development cost, partially offset by a decline in
general and administrative expenses. Research and development increased as a
result of the Company's efforts to develop new products for its growing sales to
the medical equipment market, as well as new digital products for the
hearing-health market. The $371,000 decline in administrative expenses was
mainly attributable to accruals of severance cost in 2002, along with reduced
legal and consulting fees in 2003.

IMPAIRMENT OF LONG-TERM ASSETS

In 2003, the Company recorded an impairment from abandonment of long-term assets
of $379,000 based on analysis of future cash flows; no abandonment was recorded
in 2002. The abandonment was due to previously capitalized technology costs
primarily related to microphone and headset products for the professional
audio-device market. These technology costs were no longer considered to have
future value.


                                       13
<PAGE>


NET INTEREST EXPENSE

Net interest expense declined by $161,000 from $525,000 in 2003 compared to
$686,000 in 2002. This was principally due to a reduction in the overall bank
debt. Total bank debt was $8.2 million and $14.3 million at December 31, 2003
and 2002, respectively.

OTHER

In 2003, other expense was $130,000 compared to other income of $31,000 in 2002.
The difference stemmed from an exchange loss of $94,000 on Euro denominated bank
debt in 2003. There was no similar loss in 2002.

INCOME TAXES

Income taxes were as follows (in thousands):
                                     2003            2002
                                  (restated)      (restated)
                                   --------        --------
Income tax expense (benefit)......   $ 485        $ (1,160)

Percentage of pre-tax loss........  (13.7%)         (39.0%)

The effective tax rate of (13.7) percent compared to the U.S. Federal statutory
rate of 34 percent in 2003 was primarily due to two reasons:

-  The Company established a $1.8 million valuation reserve against previously
   established tax assets as their realizability was uncertain due to the
   operating losses the Company has generated for the last three years.
-  The Company generated net operating losses (NOL) for Federal tax purposes,
   but only recognized them to the extent of the $714,000 current refund
   available. The Company estimated it had $16.6 million of carry forward
   available to offset future federal income taxes, as of December 31, 2003.

DISCONTINUED OPERATIONS

The Company recorded a net loss from discontinued operations as follows (in
thousands):

                                                2003             2002
                                                ----             ----
Net loss from Heat Technology
     Business.............................  $ (2,512)        $(11,637)
Net income from Tire Holders, Lifts and
     related products segment.............     1,499            1,093
                                            --------         --------

Net loss from discontinued operations.....  $ (1,013)        $(10,544)
                                            ========         ========

HEAT TECHNOLOGY SEGMENT

The 2003 net loss from the Heat Technology business was a result of the
insolvency filed in France. This consisted of the European heat technology
operation remaining after the 2002 sale of the large custom-engineered furnace
business. The European loss was partially offset by $110,000 of net income from
the remaining Heat Technology business with locations in Dresher, Pennsylvania,
and Tokyo, Japan. The 2002 loss was primarily due to the large custom-engineered
furnace business located in France that was sold in 2002.

TIRE HOLDER, LIFTS AND RELATED PRODUCTS SEGMENT

The net income from the Tire Holder, Lifts and Related Products segment was the
combination of net income of $8,000 from Deuer Manufacturing, Inc. prior to its
sale In July 2003 and the $1.5 million gain recognized from the sale. This
compares to net income of $1.1 million from its operations in 2002. The net
income from the operation declined substantially, stemming from lower sales
volume due to decreased automotive production and margin reductions from
increased industry pricing pressures. Additionally, 2003 only includes
approximately seven months of operations prior to the sale.


                                       14
<PAGE>


SALE OF PRIMARY CUSTOM-ENGINEERED (LARGE) FURNACE BUSINESS

In 2002, the Company completed its agreement with Andritz AG to sell certain
operating assets and liabilities of its large custom-engineered furnace business
operated by its wholly owned subsidiary Selas SAS and 100 percent of the shares
of Selas UK. In addition, the Company sold certain intellectual property used in
the business. The total consideration was equal to the net book value of the
assets transferred and liabilities assumed, plus approximately $645,000 for the
intellectual property and goodwill transferred. In 2003, it was determined
liabilities exceeded assets sold by approximately $548,000. The assets and
liabilities sold represented most of the Company's discontinued operations as
reported in the Company's financial statements for the year ended December 31,
2001. The sale excluded the remaining smaller furnace business in France that
filed insolvency in 2003. See note 3 to the Consolidated Financial Statements.

GOODWILL IMPAIRMENT

As of January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". Statement 142 set forth new financial and reporting
standards for the acquisition of intangible assets, other than those acquired in
a business combination, and for goodwill and other intangible assets subsequent
to their acquisition. This accounting standard requires that goodwill no longer
be amortized but tested for impairment at least annually. The Company
discontinued the amortization of goodwill effective January 1, 2002. The
provisions of Statement 142 also required the completion of a transitional
impairment test with any impairment identified accounted for as a cumulative
effect of a change in accounting principle. As of the date of adoption, the
Company had unamortized goodwill in the amount of $14.7 million. The Company
determined the goodwill associated with its operations had been impaired and
wrote off goodwill of $9.4 million as of January 1, 2002. The charge was
recognized as a cumulative change in accounting principle in the 2002
consolidated statement of operations. In 2004 and 2003, the results of the
annual impairment test yielded no additional impairment of the remaining $5.2
million of goodwill. Changes in the estimated future cash flows from these
businesses could have a significant impact on the amount of any future
impairment, if any.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated net working capital increased to $1.9 million at December 31, 2004
from $24,000 at December 31, 2003. The primary reason for the increase was the
net proceeds of approximately $3.6 million from the sale of the Dresher
property, which were used to pay down bank debt. The Company's cash flows from
operating, investing and financing activities, as reflected in the statement of
cash flows at December 31, are summarized as follows (in thousands):

                                               2004         2003         2002
                                            (restated)   (restated)   (restated)
Cash provided (used) by:
    Continuing operations..................  $  (847)     $ 2,689      $ 1,778
    Discontinued operations................      939        4,002       (1,555)
    Investing activities...................    2,678         (984)      (1,969)
    Financing activities...................   (2,678)      (7,373)         643
    Effect of exchange rate changes on cash      (39)         247        1,203
                                             -------      -------      -------

Increase (decrease) in cash................  $    53      $(1,419)     $   100
                                             =======      =======      =======

The Company had the following bank arrangements at December 31, (in thousands):

                                                  2004       2003
                                                  ----       ----
Total availability under existing facilities   $ 7,056    $10,399
                                               -------    -------

Borrowings and commitments:
    Notes payable...........................     3,740      6,271
    Current maturities of long-term debt....     1,458      1,967
                                               -------    -------
 Total borrowings and commitments...........     5,198      8,238
Remaining availability under existing
    facilities..............................   $ 1,857    $ 2,161
                                               =======    =======


                                       15
<PAGE>

In March 2005, the Company entered into amended agreements for its domestic
revolver and long-term debt. The new facility provides the Company with a
revolving credit limit of $4.5 million which was reduced to $4.0 million upon
the sale of burners and components business in the first quarter of 2005. A
portion of the proceeds from the sale of the Burners and Components business was
used to payoff the approximately $1.5 million outstanding principal balance on
the term loan. These facilities expire on April 1, 2006.

Borrowings under the Company's domestic credit facilities currently bear
interest at prime plus 3.0 percent. The terms of the amended agreement increase
this rate to prime plus 3.5 percent on July 1, 2005, prime plus 4.0 percent on
October 1, 2005 and prime plus 4.5 percent on January 1, 2006.

The domestic term loan and the revolving credit facility are secured by the
Company's domestic assets and the Company's domestic subsidiaries' stock. The
agreements contain restrictive covenants regarding the payment of cash
dividends, incurrence of additional debt, issuance of equity, maintenance of
working capital, net worth, shareholders' equity, and capital equipment
expenditures along with the maintenance of certain financial ratios. The Company
and its domestic subsidiaries are required to maintain, consolidated tangible
capital funds of at least $6.5 million, a consolidated current ratio of at least
1.0, and a consolidated fixed charge coverage ratio of at least 1.0 on a
year-to-date basis, which will be calculated excluding mandatory principal
repayments. In addition the Company is required to maintain consolidated total
liabilities to consolidated tangible capital funds ratio of 3.0, which was reset
to 2.25 after the sale of the Burners and Components business in the first
quarter of 2005. Management believes that the Company will be able to maintain
the amended covenants through April 1, 2006.

The Company did not meet certain covenants during the first and fourth quarters
of 2004, for which it obtained waivers from the bank. At December 31, 2004, the
Company was in compliance with all covenants of the amended agreement.

The Company believes that the amended credit facility combined with funds
expected to be generated from operations, the available borrowing capacity
through its revolving credit loan facilities and control of capital spending
will be sufficient to meet its anticipated cash requirements for operating needs
through April 1, 2006. However, the Company's ability to pay the principal and
interest on its indebtedness as it comes due will depend upon current and future
performance. Performance is affected by general economic conditions and by
financial, competitive, political, business and other factors. Many of these
factors are beyond the Company's control. If, however, the Company does not
generate sufficient cash or complete such financings on a timely basis, it may
be required to seek additional financing or sell equity on terms, which may not
be as favorable as it could have otherwise obtained. No assurance can be given
that any refinancing, additional borrowing or sale of equity will be possible
when needed, or that The Company will be able to negotiate acceptable terms. In
addition, access to capital is affected by prevailing conditions in the
financial and equity capital markets, as well as the Company's financial
condition.

CONTRACTUAL OBLIGATIONS
The following table represents the Company's contractual obligations and
commercial commitments as of December 31, 2004.

<TABLE>
<CAPTION>
                               PAYMENTS DUE BY PERIOD
                               ----------------------
   CONTRACTUAL                      LESS THAN                                 MORE THAN
   OBLIGATIONS             TOTAL       1 YEAR      1-3 YEARS     4-5 YEARS      5 YEAR
   -----------             -----       ------      ---------     ---------      ------
<S>                   <C>           <C>           <C>           <C>           <C>

Notes payable........ $3,740,000    $3,740,000    $       --    $       --    $      --
Term debt............  1,458,000     1,458,000            --            --           --
Operating leases.....  4,458,000       977,000     1,738,000     1,068,000      675,000
                      ----------    ----------    ----------    ----------    ---------
Total contractual
   cash obligations.. $9,656,000    $6,175,000    $1,738,000    $1,068,000    $ 675,000
                      ==========    ==========    ==========    ==========    =========
</TABLE>


                                       16
<PAGE>

The Company incurred approximately $254,000 in period pension and post
retirement medical benefit costs in 2004, and contributed approximately $268,000
to defined contribution plans. The Company expects a similar level of funding in
2005.

FOREIGN CURRENCY FLUCTUATION

A portion of the discontinued operations are denominated in foreign currencies,
primarily the Euro and Japanese Yen. Generally, the income statement effect of
changes in foreign currencies is partially or wholly offset by the subsidiaries'
ability to make corresponding price changes in the local currency. From time to
time, the impact of fluctuations in foreign currencies may have a material
effect on the financial results of the Company. Foreign currency transaction
amounts included in the statements of operation include a gain of $14,000 in
2004 and losses of $141,000 and $23,000 in 2003 and 2002, respectively. See note
12 to the Company's Consolidated Financial Statements included herein.

LITIGATION

The Company is a defendant along with a number of other parties in approximately
123 lawsuits as of December 31, 2004, (approximately 101 lawsuits as of December
31, 2003) alleging that plaintiffs have or may have contracted asbestos-related
diseases as a result of exposure to asbestos products or equipment containing
asbestos sold by one or more named defendants. Due to the noninformative nature
of the complaints, the Company does not know whether any of the complaints state
valid claims against the Company. Certain carriers have informed the Company
that the primary policies for the period August 1, 1970-1973, have been
exhausted and that the carriers will no longer provide a defense under those
policies. The Company has requested that the carriers substantiate this
situation. The Company believes it has additional policies available for other
years which have been ignored by the carriers. As settlement payments are
applied to all years a litigant was deemed to have been exposed to asbestos, the
Company believes when settlement payments are applied to these additional
policies, the Company will have availability under the years deemed exhausted.
The Company does not believe that the asserted exhaustion of the primary
insurance coverage for this period will have a material adverse effect on its
financial condition, liquidity, or results of operations. Management believes
that the number of insurance carriers involved in the defense of the suits and
the significant number of policy years and policy limits, to which these
insurance carriers are insuring the Company, make the ultimate disposition of
these lawsuits not material to the Company's consolidated financial position or
results of operations.

The Company is also involved in other lawsuits arising in the normal course of
business. While it is not possible to predict with certainty the outcome of
these matters, management is of the opinion that the disposition of these
lawsuits and claims will not materially affect the Company's consolidated
financial position, liquidity or results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123R, SHARE-BASED
COMPENSATION, which supersedes Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and its related implementation
guidance. SFAS No. 123R focuses primarily on accounting for transactions in
which an entity obtains employee services through share-based payment
transactions. SFAS No. 123R requires a public entity to measure the cost of
employee services received in exchange for the award of equity investments based
on the fair value of the award at the date of grant. The cost will be recognized
over the period during which an employee is required to provide services in
exchange for the award. SFAS No. 123R is effective as of the beginning of the
first interim or annual reporting period that begins after June 15, 2005. The
impact on net earnings as a result of the adoption of SFAS No. 123R, from a
historical perspective, can be found in Note 1 to the Consolidated Financial
Statements of this Annual Report. The Company is currently evaluating the
provisions of SFAS No. 123R and will adopt it on July 1, 2005, as required.

In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS, which amends
the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, INVENTORY
PRICING, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material. SFAS No. 151 requires
that those items be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal." In


                                       17
<PAGE>

addition, SFAS No. 151 requires allocation of fixed production overheads to the
costs of conversion be based on the normal capacit  of the production
facilities. We do not have any idle facility expense or wasted material expense
as of December 31, 2004. We will continue to apply the requirements of SFAS No.
151 in future periods.

In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF NONMONETARY ASSETS.
SFAS No. 153 is an amendment to APB Opinion No. 29, ACCOUNTING FOR NONMONETARY
TRANSACTIONS. SFAS No. 153 eliminates the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. We are currently
evaluating the provisions of SFAS No. 153 and will adopt it on July 1, 2005, as
required.


CRITICAL ACCOUNTING POLICIES

The significant accounting policies of the Company are described in note 1 to
the Consolidated Financial Statements and have been reviewed with the audit
committee of the Company's Board of Directors. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period.

Certain accounting estimates and assumptions are particularly sensitive because
of their importance to the consolidated financial statements and possibility
that future events affecting them may differ markedly. The accounting policies
of the Company with significant estimates and assumptions are described below.

Revenue Recognition

The Company's continuing operation recognizes revenue when products are shipped
and the customer takes ownership and assumes risk of loss, collection of the
relevant receivable is probable, persuasive evidence of an arrangement exists
and the sales price is fixed or determinable. A portion of the Company's net
sales from its discontinued Heat Technology segment is generated pursuant to
contracts that require substantial time to complete and are accordingly
accounted for on a percentage-of-completion basis. Under this method of
accounting, the sales recognized on each contract during a particular accounting
period are determined by multiplying the total contract amount by the ratio of
costs incurred to estimated total costs and deducting sales recognized in prior
accounting periods. Such contract costs and expenses incurred on a progress
basis at the time the sales value is recorded are charged to cost of sales.
Under percentage-of-completion accounting, revisions in cost estimates during
the progress of the work under the contracts have the effect of including in the
current accounting period adjustments necessary to reflect the results indicated
by the revised estimates of the final cost. Revised costs may be affected by
changes in material purchase price estimates, labor and subcontractor completion
estimates and other factors related to the contract. In addition, the Company
provides currently for any anticipated or known contract losses.

Accounts Receivable Reserves

This reserve is an estimate of the amount of accounts receivable that are
uncollectible. The reserve is based on a combination of specific customer
knowledge, general economic conditions and historical trends. Management
believes the results could be materially different if economic conditions change
for the Company's customers.

Inventory Reserves

This reserve is an estimate of the future net realizable value of the Company's
inventory. It is based on historical trends, product life cycles, forecast of
future inventory needs and on-hand inventory levels. Management believes reserve
levels could be materially affected by changes in technology, the Company's
customer base, customer needs, general economic conditions and the success of
certain Company sales programs.


                                       18
<PAGE>

Discontinued Operations

The Company continuously assesses the return on their business segments. When
management with the appropriate level of authority determines that a plan is in
place to restructure the operations of a business or discontinue an operation,
contractual commitments and obligations are recorded. See a discussion in note 3
to the consolidated financial statements.

Goodwill

The Company performs an annual assessment of the carrying value of goodwill. As
part of this assessment, the Company estimates future cash flows, as well as
making a risk assessment of investing in the Company versus other investment
opportunities. Changes in either the risk assessment or estimated future cash
flows could have a material adverse impact on the carrying value of goodwill.

Long-lived Assets

The carrying value of long-lived assets is periodically assessed to insure their
carrying value does not exceed their estimated net realizable future value. This
assessment includes certain assumptions related to future needs for the asset to
help generate future cash flow. Changes in those assessments, future economic
conditions or technological changes could have a material adverse impact of the
carrying value of these assets.

Deferred Taxes

The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities and projected future taxable income in making this assessment.
Actual future operating results, as well as changes in the future performance of
the Company, could have a material adverse impact on the valuation reserves.

Employee Benefit Obligations

The Company provides retirement and health care insurance for certain domestic
retirees and employees. The Company measures the costs of its obligation based
on its best estimate. The net periodic costs are recognized as employees render
the services necessary to earn the post-retirement benefit. Several assumptions
and statistical variables are used in the models to calculate the expense and
liability related to the plans. Assumptions about the discount rate, the
expected rate of return on plan assets and the future rate of compensation
increases are determined by the Company. The actuarial models also use
assumptions on demographic factors such as retirement, mortality and turnover.
Changes in actuarial assumptions could vary materially from actual results due
to economic events and different rates of retirement, mortality and withdrawal.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's consolidated cash flows and earnings are subject to fluctuations
due to changes in foreign currency exchange rates. The Company attempts to limit
its exposure to changing foreign currency exchange rates through operational and
financial market actions. The Company does not hold derivatives for trading
purposes.

The Company manufactures and sells its products in a number of locations around
the world, resulting in a diversified revenue and cost base that is exposed to
fluctuations in European and Asian currencies. This diverse base of foreign
currency revenues and costs serves to create a hedge that limits the Company's
net exposure to fluctuations in these foreign currencies.

Short-term exposures to changing foreign currency exchange rates are
occasionally managed by financial market transactions, principally through the
purchase of forward foreign exchange contracts (with maturities of six months or
less) to offset the earnings and cash flow impact of the nonfunctional currency
denominated receivables and payables relating to select contracts. The decision
by management to hedge any such transaction is made on a case-by-case basis.
Foreign exchange forward contracts are denominated in the same currency as the
receivable or payable being covered, and the term and amount of the forward
foreign exchange contract substantially mirrors the term and amount of the
underlying receivable or payable. The receivables and payables being covered
arise from bank debt, trade and intercompany transactions of and among the
Company's foreign subsidiaries. At December 31, 2004, the Company did not have
any forward foreign exchange contracts outstanding.


                                       19
<PAGE>

<TABLE>
<CAPTION>
INTRICON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31                                           2004                      2003                     2002
                                                               (restated)                (restated)               (restated)
                                                                --------                  --------                 --------
<S>                                                           <C>                       <C>                     <C>

Sales, net...............................................     $35,182,612               $36,202,164             $ 34,974,602

Costs of sales...........................................      27,120,897                27,638,208               26,810,538
                                                              -----------               -----------             ------------

Gross profit.............................................       8,061,715                 8,563,956                8,164,064
Operating expenses:
Selling expense..........................................       3,933,657                 3,649,027                3,666,701
General and administrative expense.......................       5,496,798                 5,258,721                5,630,424
Impairment of long term assets...........................         488,214                   378,864                       --
Research and development expense.........................       1,616,085                 2,170,415                1,186,453
                                                              -----------               -----------             ------------
  Total operating expenses...............................      11,534,754                11,457,027               10,483,578

Gain on sale of asset....................................       3,109,627                        --                       --

Operating loss...........................................        (363,412)               (2,893,071)              (2,319,514)
Interest expense.........................................         465,272                   533,461                  719,990
Interest income..........................................          (1,626)                   (7,919)                 (33,664)
Other (income) expense, net..............................         (61,618)                  129,173                  (31,140)
                                                              -----------               -----------             ------------
Loss from continuing operations before
    income taxes, discontinued operations and
    change in accounting principle.......................        (765,440)               (3,547,786)              (2,974,700)
Income tax expense (benefit).............................       1,139,797                   484,599               (1,159,557)
                                                              -----------               -----------             ------------
Loss from continuing operations
    before discontinued operations and
    change in accounting principle.......................      (1,905,237)               (4,032,385)              (1,815,143)
Income (loss) from discontinued
    operations, net of income taxes (note 3).............       1,369,433                (1,012,937)             (10,543,700)
Extraordinary gain from discontinued
     operations..........................................         683,630                        --                       --
                                                              -----------               -----------             ------------
Income (loss) before change in
    accounting principle.................................         147,826                (5,045,322)             (12,358,843)
  Cumulative effect of change in accounting
    principle............................................              --                        --               (9,428,354)
                                                              -----------               -----------             ------------
Net income (loss)........................................     $   147,826               $(5,045,322)            $(21,787,197)
                                                              ===========               ===========             ============

Basic earnings (loss) per share:
    Continuing operations................................     $      (.37)              $     ( .78)            $       (.35)
    Discontinued operations..............................             .27                     ( .20)                  ( 2.06)
    Extraordinary gain from discontinued
       operations........................................             .13                        --                       --
    Accounting principle change..........................              --                        --                    (1.84)
                                                              -----------               -----------             ------------
    Net income (loss)....................................     $       .03               $      (.98)            $      (4.25)
                                                              ===========               ===========             ============
Diluted income (loss) per share:
    Continuing operations................................     $      (.37)              $      (.78)            $       (.35)
    Discontinued operations..............................             .27                      (.20)                   (2.06)
    Extraordinary gain from discontinued
       operations........................................             .13                        --                       --
    Accounting principle change..........................              --                        --                    (1.84)
                                                              -----------               -----------             ------------
    Net income (loss)....................................     $       .03               $      (.98)            $      (4.25)
                                                              ===========               ===========             ============
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       20
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS

AT DECEMBER 31
                                                                           2004                2003
ASSETS                                                                  (restated)          (restated)
                                                                         --------            --------
<S>                                                                   <C>                 <C>

Current assets

    Cash...........................................................   $   246,430         $   193,811


    Restricted cash................................................       449,613             431,056


    Accounts receivable, less allowance for doubtful accounts of
      $177,000 in 2004 and  $254,000 in 2003.......................     4,996,705           4,537,830


    Inventories....................................................     4,287,643           5,709,642

    Refundable income taxes........................................        46,163             913,339

    Deferred income taxes..........................................            --             890,230

    Asset held for sale............................................            --             540,175

    Other current assets...........................................       379,318             480,305

    Assets of discontinued operations..............................     6,834,256           5,729,410
                                                                      -----------         -----------

      Total current assets.........................................    17,240,128          19,425,798

Property, plant and equipment
    Land...........................................................       170,500             170,500
    Buildings and improvements.....................................     1,732,914           1,732,914
    Machinery and equipment........................................    25,635,452          25,325,708
                                                                      -----------         -----------
                                                                       27,538,866          27,229,122
    Less: accumulated depreciation.................................    20,260,792          18,316,776
                                                                      -----------         -----------
      Net property, plant and equipment............................     7,278,074           8,912,346

Goodwill...........................................................     5,264,585           5,264,585

Other assets, net..................................................     1,156,449           1,126,371
                                                                      -----------         -----------

                                                                      $30,939,236         $34,729,100
                                                                      ===========         ===========
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       21

<PAGE>


<TABLE>
<CAPTION>
AT DECEMBER 31
                                                                           2004                2003
LIABILITIES AND SHAREHOLDERS' EQUITY                                    (restated)          (restated)
                                                                         --------            --------
<S>                                                                   <C>                 <C>

Current liabilities

    Notes payable..................................................   $ 3,740,393         $ 6,270,663

    Checks written in excess of cash...............................       665,098             330,699

    Current maturities of long-term debt...........................     1,458,470           1,966,800

    Accounts payable...............................................     2,211,909           2,757,942

    Customers' advance payments on contracts.......................        75,000             172,279

    Liabilities of discontinued operations.........................     4,266,899           4,265,638

    Other accrued liabilities......................................     2,638,889           3,416,480
                                                                      -----------         -----------

       Total current liabilities...................................    15,056,658          19,180,501



Other post-retirement benefit obligations..........................     2,710,106           2,827,417

Deferred income taxes..............................................       143,902             123,529

Accrued pension liability..........................................       900,713             790,618

Commitments and contingencies (notes 8 and 16)

Shareholders' equity
    Common shares, $1 par; 10,000,000 shares authorized;
    5,644,968 shares issued; 5,129,214 outstanding.................     5,644,968           5,644,968

    Additional paid-in capital.....................................    12,025,790          12,025,790

    Accumulated deficit............................................    (3,680,704)         (3,828,530)

    Accumulated other comprehensive loss...........................      (597,119)           (770,115)
                                                                      -----------         -----------
                                                                       13,392,935          13,072,113

    Less:  515,754 common shares held in treasury, at cost.........    (1,265,078)         (1,265,078)
                                                                      -----------         -----------

    Total shareholders' equity.....................................    12,127,857          11,807,035
                                                                      -----------         -----------

                                                                      $30,939,236         $34,729,100
                                                                      ===========         ===========
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       22

<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                 2004                  2003               2002
      YEARS ENDED DECEMBER  31,                                               (restated)            (restated)         (restated)
                                                                               --------              --------           --------
<S>                                                                          <C>                  <C>               <C>

      Cash flows from operating activities:
      Net income (loss)...................................................   $  147,826           $(5,045,322)      $(21,787,197)
      Adjustments to reconcile net loss to net
            cash provided (used) by operating activities:
         (Income) loss from discontinued operations.......................   (1,369,433)            1,012,937         10,543,700
         Extraordinary gain from discontinued operations..................     (683,630)                  ---                ---
         Cumulative effect of accounting change...........................          ---                   ---          9,428,354
         Impairment of long-term assets...................................      488,214               378,864                ---
         Depreciation and amortization....................................    2,289,181             2,387,227          2,451,634
         (Gains) losses on sale of property and equipment.................       (1,541)               29,265                (11)
         Deferred taxes...................................................      905,615             1,147,740           (224,267)
         Gain on sale of asset held for sale..............................   (3,109,627)                  ---                ---
         Changes in operating assets and liabilities:
            Accounts receivable...........................................     (353,078)              341,987            480,931
            Inventories...................................................    1,464,236               149,434            786,965
            Other assets..................................................      732,640            (1,092,688)           312,645
            Accounts payable..............................................     (687,363)            1,483,787           (158,215)
            Accrued expenses..............................................     (579,576)            1,798,476            221,064
            Customers advance payments on contracts.......................      (97,279)               (5,741)            60,321
            Other liabilities.............................................        6,822              (103,421)          (337,179)
                                                                             ----------           -----------       ------------

      Net cash provided (used) by continuing operations...................     (846,993)            2,689,428          1,778,745

      Net cash provided (used) by discontinued operations.................      980,428            (2,573,594)        (1,194,139)
                                                                             ----------           -----------       ------------

      Net cash provided by operating activities...........................      133,435               115,835            584,606

      Cash flows from investing activities:
         Purchases of property, plant and equipment.......................     (976,043)             (985,086)        (1,731,599)
         Proceeds from sales of property, plant and equipment.............        3,800                   500              9,600
         Proceeds from sale of asset held for sale........................    3,649,802                   ---                ---
         Purchase of patents and intangibles..............................          ---                   ---           (247,410)
                                                                             ----------           -----------       ------------

      Net cash provided (used) by  continuing operations..................    2,677,559              (984,586)        (1,969,409)
      Net cash provided (used) by discontinued operations.................      (41,890)            6,575,496           (361,235)
                                                                             ----------           -----------       ------------
      Net cash provided (used) by investing activities....................    2,635,669             5,590,909         (2,330,644)

      Cash flows from financing activities:
         Proceeds from short-term borrowings..............................      716,133               291,205          1,503,126
         Proceeds from issuance of stock..................................          ---                23,250                ---
         Repayments of short-term borrowings..............................     (432,806)           (6,089,228)        (1,106,416)
         Proceeds from borrowings used to acquire subsidiaries............          ---                   ---            955,378
         Proceeds from long term borrowings...............................      800,001                   ---                ---
         Repayments of long-term debt.....................................   (4,092,879)           (1,203,742)          (727,473)
         Change in restricted cash........................................       (2,706)              (12,811)           (29,316)
         Change in checks written in excess of cash.......................      334,399              (381,785)            47,732
                                                                             ----------           -----------       ------------

      Net cash provided (used) by financing activities....................   (2,677,858)           (7,373,111)           643,031
                                                                             ----------           -----------       ------------

      Effect of exchange rate changes on cash.............................      (38,627)              246,732          1,202,813
                                                                             ----------           -----------       ------------
      Increase (decrease) in cash.........................................       52,619            (1,419,634)            99,806
      Cash beginning of year..............................................      193,811             1,613,445          1,513,639
                                                                             ----------           -----------       ------------

      Cash end of year....................................................   $  246,430           $   193,811       $  1,613,445
                                                                             ==========           ===========       ============
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       23
<PAGE>



<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (RESTATED)


                            COMMON      COMMON                               ACCUMULATED
                             STOCK       STOCK     ADDITIONAL                   OTHER                                     TOTAL
                           NUMBER OF       $        PAID IN     RETAINED    COMPREHENSIVE COMPREHENSIVE  TREASURY     SHAREHOLDERS'
                            SHARES      AMOUNT      CAPITAL     EARNINGS     INCOME(LOSS) INCOME(LOSS)     STOCK         EQUITY
                           ---------  ----------  -----------  -----------   -----------  ------------  -----------   ------------
<S>                        <C>        <C>         <C>          <C>           <C>          <C>           <C>           <C>

Balance December 31, 2001  5,634,968  $5,634,968  $12,012,541  $23,297,747   $(1,075,561)               $(1,265,078)  $ 38,604,617
Effect of restatement
 (note 2)................                                         (293,758)       67,627                                  (226,131)
                           ---------  ----------  -----------  -----------   -----------  ------------  -----------   ------------

Balance December 31, 2001
 (as restated)...........  5,634,968  $5,634,968  $12,012,541  $23,003,989   $(1,007,934)               $(1,265,078)  $ 38,378,486
Net loss.................                                      (21,787,197)               $(21,787,197)                (21,787,197)
Translation loss.........                                                       (519,285)     (519,285)                   (519,285)
Derivative financial.....
 instrument gain.........                                                          1,948         1,948                       1,948
                           ---------  ----------  -----------  -----------   -----------  ------------  -----------   ------------
Comprehensive loss.......                                                                 $(22,304,534)
                                                                                          ============
Balance December 31, 2002  5,634,968   5,634,968   12,012,541    1,216,792    (1,525,271)                (1,265,078)    16,073,952
Issuance of stock........     10,000      10,000       13,249                                                               23,249
Net loss.................                                       (5,045,322)                 (5,045,322)                 (5,045,322)
Translation gain.........                                                      1,338,722     1,338,722                   1,338,722
Additional minimum.......
 pension liability.......                                                       (583,566)     (583,566)                   (583,566)
                           ---------  ----------  -----------  -----------   -----------  ------------  -----------   ------------
Comprehensive loss.......                                                                 $ (4,290,166)
                                                                                          ============
Balance December 31, 2003  5,644,968   5,644,968   12,025,790   (3,828,530)     (770,115)                (1,265,078)    11,807,035
Net income...............                                          147,826                     147,826                     147,826
Translation gain.........                                                        172,996       172,996                     172,996
                           ---------  ----------  -----------  -----------   -----------  ------------  -----------   ------------
Comprehensive income.....                                                                   $  320,822
                                                                                          ============
Balance December 31, 2004  5,644,968  $5,644,968  $12,025,790  $(3,680,704)  $  (597,119)               $(1,265,078)  $ 12,127,857
                           =========  ==========  ===========  ===========   ===========                ===========   ============
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       24
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Headquartered in Arden Hills, Minnesota, IntriCon Corporation (formerly Selas
Corporation of America) is an international firm that designs, develops,
engineers and manufactures microminiaturized medical and electronic products.
The Company's core business segment, Precision Miniature Medical and Electronic
Products, supplies microminiaturized components, systems and molded plastic
parts, primarily to the hearing instrument manufacturing industry, as well as
the computer, electronics, telecommunications and medical equipment industries.
In addition to its Arden Hills headquarters, the Company has facilities in
California, Singapore, and Germany.

BASIS OF PRESENTATION - A portion of the Company's prior Heat Technology
segment, operating through a wholly-owned subsidiary located in France, filed
insolvency in 2003. The Company has reclassified the historical financial data
related to this operation into discontinued operations. In the fourth quarter of
2003, the Company initiated its plan to dispose of the remaining Heat Technology
segment. This segment consists of the operating assets of Selas Corporation of
America in Dresher, Pa., and subsidiaries located in Tokyo, Japan and Ratingen,
Germany. The Company has accounted for the plan to dispose of the subsidiaries
as a discontinued operation and, accordingly, has reclassified the historical
financial data (note18). Consequently, the financial statements reflect in
continuing operations the business previously known as its Precision Miniature
Medical and Electronics segment.

In the fourth quarter of 2002, the Company initiated its plan to dispose of its
Tire Holders, Lifts and Related Products segment. This segment consisted of one
wholly owned subsidiary that operated on a stand alone basis. The Company had
accounted for the plan to dispose of the subsidiary as a discontinued operation
and, accordingly, had reclassified the historical financial data. The sale of
this business was completed in 2003 and the results of operations for 2003 are
included in discontinued operations.

See further information in note 3.

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

SEGMENT DISCLOSURES - The Company has reviewed Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise
and Related Information," and has determined that the Company meets the
aggregation criteria as its various operations do not have discrete assets and
are managed as one business.

RECLASSIFICATIONS - Certain prior-year balances have been reclassified to be
consistent with the current-year presentation.

USE OF ESTIMATES - Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, the recording
of reported amounts of revenues and expenses and the disclosure of contingent
assets and liabilities to prepare these financial statements. Actual results
could differ from those estimates.

REVENUE RECOGNITION - The Company recognizes revenue when products are shipped
and the customer takes ownership and assumes risk of loss, collection of the
relevant receivable is probable, persuasive evidence of an arrangement exists
and the sales price is fixed or determinable.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of cash, short-term
accounts and notes receivable, other current assets, notes payable to banks,
trade accounts payables, and other accrued expenses approximate fair value
because of the short maturity of those instruments.

RESTRICTED CASH - Restricted cash consists of cash deposits required to secure a
credit facility at our Singapore location.


                                       25
<PAGE>

INVENTORIES - Inventories are stated at the lower of cost or market. The cost of
the inventories was determined by the average cost and first-in, first-out
methods.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried at
cost. Depreciation is computed by straight-line and accelerated methods using
estimated useful lives of 5 to 40 years for buildings and improvements, and 3 to
12 years for machinery and equipment. Improvements are capitalized and
expenditures for maintenance, repairs and minor renewals are charged to expense
when incurred. At the time assets are retired or sold, the costs and accumulated
depreciation are eliminated and the resulting gain or loss, if any, is reflected
in the consolidated statement of operations.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF - The
Company reviews its long-lived assets, certain identifiable intangibles, and
goodwill for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset group to future net cash flows expected to be generated by the asset
group. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

The test for goodwill impairment is a two-step process, and is performed at
least annually. The first step is a comparison of the fair value of the
reporting unit with its carrying amount, including goodwill. If this step
reflects impairment, then the loss would be measured as the excess of recorded
goodwill over its implied fair value. Implied fair value is the excess of fair
value of the reporting unit over the fair value of all identified assets and
liabilities.

Beginning in 2002, the Company discontinued amortizing goodwill according to
SFAS Statement 142 "Goodwill and Other Intangible Assets." As a result, no
amortization expense for goodwill was recorded in 2002, 2003 or 2004. As of
January 1, 2002, the Company recognized a cumulative change in accounting
principle related to the adoption of Statement 142. See note 6 for additional
information.

INCOME TAXES - Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Valuation reserves are established to the extent the
future benefit from the deferred tax assets realization is uncertain. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

EMPLOYEE BENEFIT OBLIGATIONS - The Company provides pension and health care
insurance for certain domestic retirees and employees of its discontinued
operations. These obligations have been included in continuing operations as the
Company expects to retain these obligations. The Company also provides
retirement related benefits for certain foreign employees. The Company measures
the costs of its obligation based on actuarial determinations. The net periodic
costs are recognized as employees render the services necessary to earn the
post-retirement benefit.

Several assumptions and statistical variables are used in the models to
calculate the expense and liability related to the plans. Assumptions about the
discount rate, the expected rate of return on plan assets and the future rate of
compensation increases are determined by the Company. Note 11 includes
disclosure of these rates on a weighted-average basis, encompassing the plans.
The actuarial models also use assumptions on demographic factors such as
retirement, mortality and turnover. The Company believes the assumptions are
within accepted guidelines and ranges. However, these actuarial assumptions
could vary materially from actual results due to economic events and different
rates of retirement, mortality and withdrawal.

Deferred pension costs are actuarially determined and are amortized on a
straight-line basis over the expected periods to be benefited, which currently
is 15 years.

STOCK OPTION PLAN - The Company applies the intrinsic-value-based method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
including Financial Accounting Standard Board (FASB) Interpretation No. 44,
"Accounting for


                                       26
<PAGE>

Certain Transactions involving Stock Compensation," an interpretation of APB
Opinion No. 25, issued in March 2000, to account for its fixed-plan stock
options. Under this method, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. As allowed by Statement of Financial Accounting Standards No.
123 (SFAS No. 123), "Accounting for Stock-Based Compensation", as amended by
Statement of Financial Accounting Standards No. 148 (SFAS No. 148), "Accounting
for Stock-Based Compensation - Transition and Disclosure", the Company has
elected to continue to apply the intrinsic-value-based method, and has adopted
only the disclosure requirements of SFAS No. 123. Therefore, no compensation
expense has been recognized for the stock option plans. SFAS No. 123, amended by
SFAS No. 148, requires the Company to disclose pro forma net income and pro
forma earnings per share amounts as if compensation expense was recognized for
options granted after 1995. Using this approach, net loss and loss per share
would have been increased to the pro forma amounts indicated in the table:

<TABLE>
<CAPTION>
                                                         YEAR ENDED  DECEMBER 31,
                                                         ------------------------
                                                 2004            2003              2002
                                              (restated)      (restated)        (restated)
                                               --------        --------          --------
<S>                                           <C>            <C>              <C>

Net Income (loss) as reported...............  $ 147,826      $(5,045,322)     $(21,787,197)
Deduct:  total stock-based employee
  compensation expense determined under
  fair value based method for all awards,
  net of related tax effects................   (245,040)        (173,987)         (152,335)
                                              ---------      -----------      ------------
Pro forma net loss..........................  $ (97,214)     $(5,219,309)     $(21,939,532)
                                              =========      ===========      ============

Earnings (loss) per share:
  Basic-as reported.........................  $     .03      $     (0.98)     $      (4.25)
  Basic-pro forma...........................  $    (.02)     $     (1.02)     $      (4.29)
</TABLE>

Reported basic and diluted earnings are the same for all periods presented.

For disclosure purposes, the fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:

                               2004        2003        2002
                               ----        ----        ----
Dividend yield...............  2.0%        2.1%        2.2%
Expected volatility.......... 78.0%       66.9%       55.4%
Risk-free interest rate......  4.3%        4.2%        3.7%
Expected life (years)........  6.3         6.3         6.2


The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of subjective
assumptions, including the expected stock price volatility. Because the
Company's options have characteristics different from those of traded options,
in the opinion of management, the existing models do not necessarily provide a
reliable single measure of the fair value of its options.


RESEARCH AND DEVELOPMENT COSTS - Research and development costs, net of customer
funding amounted to $1.6 million, $2.1 million and $1.2 million in 2004, 2003
and 2002, respectively. Such costs are charged to expense when incurred.


                                       27
<PAGE>

The following table sets forth development costs associated with customer
funding:

                                           YEARS ENDED DECEMBER 31,
                                           ------------------------
                                    2004             2003           2002
                                    ----             ----           ----
Total cost incurred..........  $ 435,000        $ 746,000        $    --
Amount funded by customers...   (366,000)        (469,000)            --
                               ---------        ---------        -------
Net expense..................  $  69,000        $ 346,000             --
                               =========        =========        =======


EARNINGS (LOSS) PER SHARE - Basic earnings (loss) per share are computed by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding during the year. Diluted earnings per common share reflect the
potential dilution of securities that could share in the earnings.

COMPREHENSIVE INCOME (LOSS) - Comprehensive income (loss) consists of net income
(loss), foreign currency translation adjustments, minimum pension liability
adjustments, and derivative financial instrument gains and is presented in the
consolidated statements of shareholders' equity.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123R, SHARE-BASED
COMPENSATION, which supersedes Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and its related implementation
guidance. SFAS No. 123R focuses primarily on accounting for transactions in
which an entity obtains employee services through share-based payment
transactions. SFAS No. 123R requires a public entity to measure the cost of
employee services received in exchange for the award of equity investments based
on the fair value of the award at the date of grant. The cost will be recognized
over the period during which an employee is required to provide services in
exchange for the award. SFAS No. 123R is effective as of the beginning of the
first interim or annual reporting period that begins after June 15, 2005. The
impact on net earnings as a result of the adoption of SFAS No. 123R, from a
historical perspective, can be found in Note 1 to the Consolidated Financial
Statements of this Annual Report. We are currently evaluating the provisions of
SFAS No. 123R and will adopt it on July 1, 2005, as required.

In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS, which amends
the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, INVENTORY
PRICING, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material. SFAS No. 151 requires
that those items be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal." In addition, SFAS No. 151 requires
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. SFAS No. 151 is effective for
fiscal years beginning after June 15, 2005. We are currently evaluating the
provisions of SFAS No. 151 and will adopt it as required.

In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF NONMONETARY ASSETS.
SFAS No. 153 is an amendment to APB Opinion No. 29, ACCOUNTING FOR NONMONETARY
TRANSACTIONS. SFAS No. 153 eliminates the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. We are currently
evaluating the provisions of SFAS No. 153 and will adopt it on July 1, 2005, as
required.

2. RESTATEMENT OF FINANCIAL STATEMENTS

We have restated our consolidated financial statements for the years 2000
through 2004 (the "Restatement"). The determination to restate these financial
statements was made after errors were discovered in May, 2005. In addition,
certain disclosures in other notes to our consolidated financial statements have
been restated to reflect the Restatement adjustments. In the Restatement, we
have:

  o  Corrected the accounting for certain research and development expenditures
     that were erroneously capitalized to the balance sheet by recording charges
     to the statement of operations.
  o  Reversed amortization expense related to the erroneously capitalized
     research and development expenditures.
  o  Adjusted income tax reserves as a function of the impact on pre-tax income
     relating to the correction of accounting for certain research and
     development expenditures noted above.


                                       28
<PAGE>


The Restatement narrative below includes only the 2002, 2003, and 2004 audited
amounts as well as the impact of prior period Restatement amounts on beginning
retained earnings at January 1, 2002.

The Restatement reduced our earnings before income taxes for 2002 and 2003 by
$314,000 and $98,000, respectively. For 2004, the Restatement increased our
earnings before income taxes by $49,000.

The 2002 Restatement was comprised of a $24,000 reduction in cost of sales to
reverse amortization expense and a $338,000 charge to research and development
expense to reverse capitalized research and development costs. The 2003
Restatement was comprised of a $347,000 reduction in cost of sales to reverse
amortization expense, a $37,000 charge to general and administrative expense to
reverse capitalized engineering support costs, and a $408,000 charge to research
and development expense to reverse capitalized research and development costs.
The 2004 Restatement was comprised of a $193,000 reduction in cost of sales to
reverse amortization expense, a $15,000 charge to general and administrative
expense to reverse capitalized engineering support costs, and a $129,000 charge
to research and development expense to reverse capitalized research and
development costs.

The impact of the Restatement on the consolidated statements of operations for
these periods is shown on the accompanying table. The quarterly impact of the
Restatement for 2003 and 2004 is presented in the note, "Supplementary Quarterly
Data."

The Restatement decreased beginning retained earnings for the year ended
December 31, 2001 presented on our consolidated statements of stockholders'
equity from $23,297,000 as previously reported to $23,004,000 as restated. This
$293,000 decrease, net of tax of $127,000 represented the cumulative impact of
restating 2000 and 2001 for the accounting errors described above.

The Restatement had no impact on historical cash balances. For 2002 the
Restatement had no impact on net cash provided by operating activities. For 2003
the Restatement decreased net cash provided by operating activities by $418,000
with an offsetting reduction in cash used in investing activities of $418,000.
For 2004 the Restatement decreased net cash provided by operating activities by
$118,000 with an offsetting reduction in cash used in investing activities of
$118,000.

The following tables present the effect of the Restatement on the consolidated
statements of operations (in thousands except for per share data).



                                       29
<PAGE>

<TABLE>
<CAPTION>
                                                                             For the Year Ending December 31, 2004
                                                                             -------------------------------------
                                                                    As Presented          Adjustment             Restated
                                                                    ------------          ----------             --------
<S>                                                                      <C>                  <C>                 <C>

Sales, net.........................................................      $35,183              $   --              $35,183

Cost of sales......................................................       27,314                (193)              27,121
                                                                         -------              ------              -------

Gross profit.......................................................        7,869                 193                8,062

Operating expenses:
Selling expense....................................................        3,934                  --                3,934
General and administrative expense.................................        5,482                  15                5,497
Impairment of long term assets.....................................          488                  --                  488
Research and development expense...................................        1,487                 129                1,616
                                                                         -------              ------              -------
   Total operating expenses........................................       11,391                 144               11,535

Gain on sale of asset..............................................        3,110                  --                3,110
                                                                         -------              ------              -------
Operating loss.....................................................         (412)                 49                 (363)

Interest expense...................................................         (465)                 --                 (465)
Interest income....................................................            2                  --                    2
Other (income) expense, net........................................          (61)                 --                  (61)
                                                                         -------              ------              -------
Loss from continuing operations before income taxes,
   discontinued operations and change in accounting principle......         (814)                 49                 (765)
Income tax expense.................................................        1,144                  (4)               1,140
                                                                         -------              ------              -------
Loss from continuing operations before discontinued operations
   and change in accounting principle..............................       (1,958)                 53               (1,905)
Income from discontinued operations, net of income taxes...........        1,369                  --                1,369
Extraordinary gain from discontinued operations....................          684                  --                  684
                                                                         -------              ------              -------
Net income (loss)..................................................      $    95              $   53              $   148
                                                                         =======              ======              =======


Basic earnings (loss) per share:
   Continuing operations...........................................      $  (.38)             $  .01              $  (.37)
   Discontinued operations.........................................          .27                  --                  .27
   Extraordinary gain from discontinued operations.................          .13                  --                  .13
                                                                         -------              ------              -------
    Net income (loss)..............................................      $   .02              $  .01              $   .03
                                                                         =======              ======              =======

Diluted income (loss) per share:
   Continuing operations...........................................      $  (.38)             $  .01              $  (.37)
   Discontinued operations.........................................          .27                  --                  .27
   Extraordinary gain from discontinued operations.................          .13                  --                  .13
                                                                         -------              ------              -------
   Net income (loss)...............................................      $   .02              $  .01              $   .03
                                                                         =======              ======              =======
</TABLE>

                                       30
<PAGE>


<TABLE>
<CAPTION>
                                                                             For the Year Ending December 31, 2003
                                                                             -------------------------------------
                                                                    As Presented          Adjustment             Restated
                                                                    ------------          ----------             --------
<S>                                                                      <C>                  <C>                 <C>

Sales, net.........................................................      $36,202              $   --              $36,202

Cost of sales......................................................       27,985                (347)              27,638
                                                                         -------              ------              -------

Gross profit.......................................................        8,217                 347                8,564

Operating expenses:
Selling expense....................................................        3,649                  --                3,649
General and administrative expense.................................        5,222                  37                5,259
Impairment of long term assets.....................................          379                  --                  379
Research and development expense...................................        1,763                 408                2,171
                                                                         -------              ------              -------
   Total operating expenses........................................       11,013                 445               11,458

Operating loss.....................................................       (2,796)                (97)              (2,893)

Interest expense...................................................         (533)                 --                 (533)
Interest income....................................................            8                  --                    8
Other (income) expense, net........................................          129                  --                  129
                                                                         -------              ------              -------
Loss from continuing operations before income taxes and
   discontinued operations.........................................       (3,450)                (97)              (3,547)
Income tax expense (benefit).......................................          511                 (26)                 485
                                                                         -------              ------              -------
Loss from continuing operations before discontinued operations.....       (3,961)                (71)              (4,032)
Loss from discontinued operations, net of income taxes.............       (1,013)                 --               (1,013)
                                                                         -------              ------              -------
Net income (loss)..................................................      $(4,974)             $  (71)             $(5,045)
                                                                         =======              ======              =======


Basic earnings (loss) per share:
   Continuing operations...........................................      $  (.77)             $ (.01)             $  (.78)
   Discontinued operations.........................................         (.20)                 --                 (.20)
                                                                         -------              ------              -------
    Net income (loss)..............................................      $  (.97)             $ (.01)             $  (.98)
                                                                         =======              ======              =======

Diluted income (loss) per share:
   Continuing operations...........................................      $  (.77)             $ (.01)             $  (.78)
   Discontinued operations.........................................         (.20)                 --                 (.20)
                                                                         -------              ------              -------
   Net income (loss)...............................................      $  (.97)             $ (.01)             $  (.98)
                                                                         =======              ======              =======
</TABLE>


                                       31
<PAGE>


<TABLE>
<CAPTION>
                                                                             For the Year Ending December 31, 2002
                                                                             -------------------------------------
                                                                    As Presented          Adjustment             Restated
                                                                    ------------          ----------             --------
<S>                                                                     <C>                   <C>                <C>

Sales, net.........................................................     $ 34,975              $   --             $ 34,975

Cost of sales......................................................       26,835                 (24)              26,811
                                                                        --------              ------             --------

Gross profit.......................................................        8,140                  24                8,164

Operating expenses:
Selling expense....................................................        3,667                  --                3,667
General and administrative expense.................................        5,630                  --                5,630
Impairment of long term assets.....................................           --                  --                   --
Research and development expense...................................          848                 338                1,186
                                                                        --------              ------             --------
   Total operating expenses........................................       10,145                 338               10,483

Operating loss.....................................................       (2,005)               (314)              (2,319)

Interest expense...................................................         (720)                 --                 (720)
Interest income....................................................           34                  --                   34
Other (income) expense, net........................................          (30)                 --                  (30)
                                                                        --------              ------             --------
Loss from continuing operations before income taxes,
   discontinued operations and change in accounting principle......       (2,661)               (314)              (2,975)
Income tax expense (benefit).......................................       (1,078)                (81)              (1,160)
                                                                        --------              ------             --------
Loss from continuing operations before discontinued operations
   and change in accounting principle..............................       (1,583)               (233)              (1,815)
Income (loss) from discontinued operations, net of income taxes....      (10,544)                 --              (10,544)
Income (loss) before change in accounting principle................      (12,127)               (233)             (12,359)
                                                                        --------              ------             --------
Cumulative effect of change in accounting principle................       (9,428)                 --               (9,428)
                                                                        --------              ------             --------
Net income (loss)..................................................     $(21,555)             $ (233)            $(21,787)
                                                                        ========              ======             ========


Basic earnings (loss) per share:
   Continuing operations...........................................      $(  .31)             $ (.04)            $   (.35)
   Discontinued operations.........................................        (2.06)                 --                (2.06)
   Accounting principle change.....................................        (1.84)                 --                (1.84)
                                                                        --------              ------             --------
    Net income (loss)..............................................     $  (4.21)             $ (.04)            $  (4.25)
                                                                        ========              ======             ========

Diluted income (loss) per share:
   Continuing operations...........................................     $   (.31)             $ (.04)            $   (.35)
   Discontinued operations.........................................        (2.06)                 --                (2.06)
   Accounting principle change.....................................        (1.84)                 --                (1.84)
                                                                        --------              ------             --------
   Net income (loss)...............................................     $  (4.21)             $ (.04)            $  (4.25)
                                                                        ========              ======             ========
</TABLE>


                                       32
<PAGE>



The following tables present the effect of the Restatement on the consolidated
balance sheet for December 31, 2004 and 2003 respectively (in thousands).

<TABLE>
<CAPTION>
                                                                                      December 31, 2004
                                                                                      -----------------
                                                                    As Presented          Adjustment             Restated
                                                                    ------------          ----------             --------
<S>                                                                     <C>                   <C>                <C>
ASSETS
Cash...............................................................     $    246                  --             $    246
Restricted cash....................................................          450                  --                  450
Accounts receivable................................................        4,997                  --                4,997
Inventories........................................................        4,288                  --                4,288
Refundable income tax..............................................           --                  46                   46
Other current assets...............................................          379                  --                  379
Assets of discontinued operations..................................        6,834                                    6,834
                                                                        --------              ------             --------
   Total current assets............................................       17,194                  46               17,240

Property, plant and equipment
  Land.............................................................          171                  --                  171
  Buildings and improvements.......................................        1,733                  --                1,733
  Machinery and equipment..........................................       26,498                (863)              25,635
                                                                        --------              ------             --------
                                                                          28,402                (863)              27,539
Less accumulated depreciation......................................      (20,402)                141              (20,261)
                                                                        --------              ------             --------
   Net property, plant and equipment...............................        8,000                (722)               7,278

Goodwill...........................................................        5,265                  --                5,265
Other assets, net..................................................        1,261                (104)               1,156
                                                                        --------              ------             --------

Total assets.......................................................     $ 31,720              $(781)             $ 30,939
                                                                        ========              ======             ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes Payable......................................................     $  3,740                  --             $  3,740
Checks written in excess of cash...................................          665                  --                  665
Current maturities of long-term debt...............................        1,458                  --                1,458
Accounts payable...................................................        2,212                  --                2,212
Federal, state and foreign income taxes............................          179                (179)                  --
Customers' advance payments on contracts...........................           75                  --                   75
Liabilities of discontinued operations.............................        4,267                  --                4,267
Other accrued liabilities..........................................        2,639                  --                2,639
                                                                        --------              ------             --------
    Total current liabilities......................................       15,235                (179)              15,056

Other post-retirement benefit obligations..........................        2,710                  --                2,710
Deferred income taxes..............................................          144                  --                  144
Accrued pension liability..........................................          901                  --                  901

Shareholders' equity
Common shares......................................................        5,645                  --                5,645
Additional paid-in capital.........................................       12,026                  --               12,026
Accumulated deficit................................................       (3,136)               (545)              (3,681)
Accumulated other comprehensive loss...............................         (540)                (57)                (597)
                                                                        --------              ------             --------
                                                                          13,995                (602)              13,393
Less: treasury stock...............................................       (1,265)                 --               (1,265)
                                                                        --------              ------             --------
Total shareholders' equity.........................................       12,730                (602)              12,128
                                                                        --------              ------             --------
Total liabilities and shareholders' equity.........................     $ 31,720              $(781)             $ 30,939
                                                                        ========              ======             ========
</TABLE>

                                       33
<PAGE>


<TABLE>
<CAPTION>
                                                                                      December 31, 2003
                                                                                      -----------------
                                                                    As Presented          Adjustment             Restated
                                                                    ------------          ----------             --------
<S>                                                                     <C>                   <C>                <C>
ASSETS
Cash...............................................................     $    194                  --             $    194
Restricted cash....................................................          431                  --                  431
Accounts receivable................................................        4,538                  --                4,538
Inventories........................................................        5,710                  --                5,710
Refundable income tax..............................................          728                 185                  913
Other current assets...............................................          480                  --                  480
Deferred income taxes..............................................          890                  --                  890
Asset held for sale................................................          540                  --                  540
Assets of discontinued operations..................................        5,729                                    5,729
                                                                        --------              ------             --------
   Total current assets............................................       19,240                 185               19,425

Property, plant and equipment
  Land.............................................................          171                  --                  171
  Buildings and improvements.......................................        1,733                  --                1,733
  Machinery and equipment..........................................       26,353              (1,028)              25,325
                                                                        --------              ------             --------
                                                                          28,257              (1,028)              27,229
Less accumulated depreciation......................................      (18,621)                304              (18,317)
                                                                        --------              ------             --------
   Net property, plant and equipment...............................        9,636                (724)               8,912

Goodwill...........................................................        5,265                  --                5,265
Other assets, net..................................................        1,253                (126)               1,127
                                                                        --------              ------             --------

Total assets.......................................................     $ 35,394              $ (665)            $ 34,729
                                                                        ========              ======             ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes Payable......................................................     $  6,271                  --             $  6,271
Checks written in excess of cash...................................          331                  --                  331
Current maturities of long-term debt...............................        1,967                  --                1,967
Accounts payable...................................................        2,758                  --                2,758
Federal, state and foreign income taxes............................           37                 (37)                  --
Customers' advance payments on contracts...........................          172                  --                  172
Liabilities of discontinued operations.............................        4,265                  --                4,265
Other accrued liabilities..........................................        3,416                  --                3,416
                                                                        --------              ------             --------
    Total current liabilities......................................       19,217                (37)               19,180

Other post-retirement benefit obligations..........................        2,827                  --                2,827
Deferred income taxes..............................................          123                  --                  123
Accrued pension liability..........................................          791                  --                  791

Shareholders' equity
Common shares......................................................        5,645                  --                5,645
Additional paid-in capital.........................................       12,026                  --               12,026
Accumulated deficit................................................       (3,231)               (597)              (3,828)
Accumulated other comprehensive loss...............................         (739)                (31)                (770)
                                                                        --------              ------             --------
                                                                          13,701                (628)              13,073
Less: treasury stock...............................................       (1,265)                 --               (1,265)
                                                                        --------              ------             --------
Total shareholders' equity.........................................       12,436                (629)              11,808
                                                                        --------              ------             --------
Total liabilities and shareholders' equity.........................     $ 35,394              $ (665)            $ 34,729
                                                                        ========              ======             ========
</TABLE>

                                       34
<PAGE>


3. DISCONTINUED OPERATIONS

The Company has embarked on a strategy to focus on its Precision Miniature
Medical and Electronics Products markets for future growth.

Consistent with this strategy, the Company completed its planned sale of its
Tire Holders, Lifts and Related Products segment in July of 2003. This segment
consisted of one wholly owned subsidiary, Deuer Manufacturing, Inc. (Deuer) that
operated on a stand alone basis. The net purchase price of $6.6 million was
determined by negotiations between the parties. The Company recognized a gain of
approximately $1.5 million, net of tax, on the transaction. Proceeds from the
transaction were used primarily to reduce the Company's outstanding bank debt.
The Company accounted for the plan to sell the subsidiary as a discontinued
operation beginning in 2002.



The following table shows the results of operations of Deuer:

                                              YEARS ENDED DECEMBER 31,
                                              ------------------------
                                                  2003          2002
                                                  ----          ----
                                                   (in thousands)
Sales, net..................................   $ 8,522       $16,783
Operating costs and expenses................     8,520        15,077
                                               -------       -------
Operating income............................         2         1,706
Other income, net (including gain on sale)..     1,491             6
                                               -------       -------
Income before income taxes..................     1,493         1,712
Income tax expense (benefit)................        (6)          619
                                               -------       -------

Net income from discontinued operations.....   $ 1,499       $ 1,093
                                               =======       =======

The Company's Heat Technology segment consisted of three components: a primary
custom-engineered furnace business, a small furnace business, and a burners and
components business.

Primary Custom-Engineered Furnace Business - In the fourth quarter of 2002, the
Company disposed of the assets held by Selas SAS (Paris, France), together with
the stock of its subsidiary, Selas U.K. (Derbyshire, United Kingdom). These
subsidiaries formed the Company's large custom-engineered furnaces division used
primarily in the steel and glass industries worldwide. The furnaces designed by
this division were custom-engineered to meet customer specific requirements. The
purchase price was approximately $645,000 above the net asset value at the time
of sale, and the $645,000 was paid at closing in 2002. The buyer assumed the
underlying liabilities. In addition, the purchaser acquired a receivable of $1.5
million ((euro)1,290,000) representing 85 percent of a receivable due on a
completed construction contract. The Company agreed to repurchase that portion
of the receivable that was not collected by May 2003. During 2003, the following
was determined:
-   Liabilities assumed by the buyer exceeded assets by approximately $548,000;
-   Selas SAS collected approximately $489,000 from assets sold to the buyer,
    but did not remit these funds to the buyer prior to its insolvency; and
-   Selas SAS collected $350,000 on the receivable assumed by the purchase,
    but did not remit the funds to the buyer prior to insolvency.
As a result of these events, including the insolvency of the Company's French
subsidiary, the Company agreed to a settlement with the buyer pursuant to which
the Company agreed to pay approximately $2,540,000 ((euro)2,180,000) to the
buyer, payable in an initial installment of $466,000 ((euro)400,000) plus
monthly installment of approximately $125,000 per month ((euro)100,000). The
December 31, 2003, balance sheet reflected a net outstanding liability of
$796,000 related to the above matter. The Company paid this liability in 2004,
and the receivable on the aforementioned construction contract has been
collected. As of December 31, 2004, no additional liability related to this
matter exists.


                                       35
<PAGE>

Small Furnace Business - In July 2003, the Company's subsidiary Selas SAS, filed
insolvency in France and is under the control of a French insolvency court
administrator. Selas SAS and its subsidiaries constituted the Company's small
furnace business. Because Selas SAS and its subsidiaries are no longer under the
control of the Company, their results of operations are excluded from the
continuing operations and the historical financial information has been
reclassified to reflect these subsidiaries as discontinued operations.

Burners and Components Business - In 2003, the Company initiated its plan to
sell the remainder of its Heat Technology segment and has classified it as a
discontinued operation. This segment consisted of the operating assets of Selas
Corporation of America located in Dresher, Pennsylvania, Nippon Selas located in
Tokyo, Japan and Selas Waermetechnik in Ratingen, Germany. In the third quarter
of 2004, Selas Corporation of America reacquired Selas Waermetechnik GmbH, which
was previously part of Selas SAS. Selas SAS filed insolvency in August of 2003
(note 3). The Company recorded an extraordinary gain of approximately $684,000
on the reacquisition of Selas Waermetechnik, GmbH (note 4). In the first quarter
of 2005, the Company sold the remainder of its Heat Technology segment. The
total purchase price was approximately $3.6 million, subject to adjustment, of
which approximately $2.7 million was paid in cash and $900,000 was paid in the
form of a subordinated promissory note (note 18).

The following table shows the results of operations of the Company's Heat
Technology segment:

<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                                         ------------------------
                                                                    2004           2003           2002
                                                                    ----           ----           ----
                                                                             (in thousands)
<S>                                                             <C>            <C>            <C>
Sales, net...................................................   $  9,732       $ 18,370       $ 43,086
Operating costs and expenses.................................      8,263         19,154         52,785
                                                                --------       --------       --------
Operating income (loss)......................................      1,469           (784)        (9,699)
Other expense, net (including loss on abandonment)...........        (10)        (3,054)          (582)
                                                                --------       --------       --------
Income (loss) from operations before income tax (benefit)....      1,459         (3,838)       (10,281)
Income tax expense (benefit).................................         90         (1,326)           232
                                                                --------       --------       --------
Net income (loss ) from discontinued operations before
    extraordinary gain and change in accounting principle....      1,369         (2,512)       (10,513)
Extraordinary gain...........................................        684             --             --
                                                                --------       --------       --------
Net income (loss ) from discontinued operations before change
    in accounting principle..................................      2,053         (2,512)            --
Cumulative effect of change in accounting principle..........         --             --         (1,124)
                                                                --------       --------       --------
Net income (loss) from discontinued operations...............   $  2,053       $ (2,512)      $(11,637)
                                                                ========       ========       ========
</TABLE>

The following table shows the component assets and liabilities of the Heat
Technology business segment:

                                                DECEMBER 31,
                                                ------------
                                              2004         2003
                                             ------       ------
                                                (in thousands)
       Current assets......................  $6,479       $5,346
       Property plant and equipment, net...     216          247
       Other assets........................     139          137
                                             ------       ------
           Total assets....................  $6,834       $5,729
                                             ======       ======

       Current liabilities.................  $2,422       $2,259
       Other liabilities...................   1,845        2,007
                                             ------       ------
           Total liabilities...............  $4,267       $4,266
                                             ======       ======


Certain notes to these consolidated financial statements have been restated to
reflect the Company's presentation of what constitutes its discontinued
operations.


                                       36
<PAGE>


4. ACQUISITIONS

In the third quarter of 2004, the Company reacquired Selas Warmetechnik GmbH,
which was previously part of Selas SAS. Selas SAS filed insolvency in August of
2003. Since that time Selas Waermetechnik GmbH was under the control of a French
court administrator. The Company owned the rights to the Selas name and the
technology for the European market. This enabled the Company to reacquire the
subsidiary for the minimal amount of $10,500 and record an extraordinary gain
within discontinued operations of approximately $684,000 on the acquisition. The
components of the gain are illustrated in the following table.

  Fair market value of assets acquired         $1,060,666
  Fair market value of liabilities assumed       (366,528)
                                               ----------
  Net fair market value acquired                  694,138
  Purchase price                                   10,508
                                               ----------
  Gain on acquisition                          $  683,630


The Company sold the subsidiary during the first quarter of 2005, as part of its
Burners and Components business (note 18); therefore it has classified the
segment as a discontinued operation and, accordingly, has reclassified the
historical data.


5. GEOGRAPHIC INFORMATION

The geographical distribution of long-lived assets and net sales to geographical
areas for the years ended December 31, 2004, 2003 and 2002 are set forth below:

LONG-LIVED ASSETS
                       2004             2003             2002
                    (restated)       (restated)       (restated)
                     --------         --------         --------

United States..... $13,041,036      $14,624,054      $16,727,354
Other.............     658,072          679,248          621,180
                   -----------      -----------      -----------
Consolidated...... $13,699,108      $15,303,302      $17,348,534
                   ===========      ===========      ===========

Long-lived assets consist primarily of property and equipment, goodwill and
other intangibles. The Company capitalizes long-lived assets pertaining to the
production of specialized parts. These assets are periodically reviewed to
assure the net realizable value from the estimated future production based on
forecasted sales exceeds the carrying value of the assets. In 2004, the Company
recorded an impairment from abandonment of long-term assets of $488,000 based on
analysis of future cash flows; in 2003, an impairment from abandonment of
long-term assets of $379,000 was recorded.

NET SALES TO GEOGRAPHICAL AREAS
                                2004             2003             2002
                                ----             ----             ----

United States..........  $23,016,596      $23,114,839      $20,175,564
Germany................    2,299,733        1,921,226        1,657,598
Singapore..............    2,045,673        2,180,837        1,162,104
Switzerland............    1,332,322          694,265          480,832
Canada.................    1,225,414        1,735,565        1,579,251
United Kingdom.........      886,183          834,585          158,000
Hong Kong..............      862,588        1,684,001          612,862
China..................      862,314          854,302           76,100
Japan..................      643,628          546,602        1,209,584
France.................      201,369          149,000        2,780,196
All other countries....    1,806,792        2,485,942        5,082,511
                         -----------      -----------      -----------
Consolidated...........  $35,182,612      $36,202,164      $34,974,602
                         ===========      ===========      ===========


                                       37
<PAGE>

Geographic net sales are allocated based on the location of the customer. All
other countries include net sales primarily to various countries in Europe and
in the Asian Pacific.


In 2004 and 2002, no one customer accounted for more than 10 percent of the
Company's consolidated net sales. During 2004 the top five customers accounted
for approximately $12 million or 34 percent of the Company's consolidated net
sales. In 2003 Sonic Innovations, one of the Company's hearing-health customers
accounted for $4.5 million or 12.4 percent of the Company's consolidated net
sales.




6. GOODWILL AND OTHER INTANGIBLE ASSETS

As of January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." Statement 142 set forth new financial and reporting
standards for the acquisition of intangible assets, other than those acquired in
a business combination, and for goodwill and other intangible assets subsequent
to their acquisition. This accounting standard requires that goodwill no longer
be amortized but tested for impairment on a periodic basis. The Company
discontinued the amortization of goodwill effective January 1, 2002. The
provisions of Statement 142 also required the completion of a transitional
impairment test with any impairment identified accounted for as a cumulative
effect of a change in accounting principle. As of the date of adoption, the
Company had unamortized goodwill from continuing operations in the amount of
$14,693,000. The Company determined the goodwill was impaired and recognized an
impairment charge of $9,428,000. The charge was recognized as a cumulative
change in accounting principle in the 2002 consolidated statement of operations.
Within its discontinued Heat Technology operations, The Company also determined
goodwill had been impaired and wrote off the remaining net goodwill of
$1,124,000. The combined net charge totaled $10,552,000. Changes in the
estimated future cash flows from these businesses could have a significant
impact on the amount of any future impairment, if any.

Prior to the adoption of Statement 142, the Company assessed the recoverability
of intangible assets by determining whether the amortization of the balance over
its remaining life could be recovered through projected undiscounted future cash
flows of the business for which the intangible assets arose. No impairment was
recognized in prior years. In accordance with Statement 142, the Company
discontinued amortization of goodwill effective January 1, 2002.

A reconciliation of previously reported net earnings (loss) per share adjusted
for goodwill, net of the related income tax effects, follows:

                                                    DECEMBER 31, 2002
                                                       (restated)
                                                        --------
Net loss before accounting change..................  $(12,358,843)
Cumulative effect in change in accounting..........    (9,428,354)
                                                     ------------

Adjusted net loss..................................  $(21,787,197)
                                                     ============
Earnings per share:
    Net loss before accounting change..............  $      (2.41)
    Cumulative effect of change in accounting......         (1.84)
                                                     ------------
    Adjusted net loss..............................  $      (4.25)
                                                     ============

There was no change in the carrying amount of goodwill from continuing
operations for the years ended December 31, 2004 and 2003.

After taking into consideration the growth in the overall hearing health,
professional audio and medical markets during 2004, revised future industry
estimates, and the overall market capitalization of the Company, the earnings
forecast for the next five years was revised and indicated no additional
impairment charge was required in 2004. The fair value was estimated using the
expected present value of future cash flows. In determining the discount factor,
the Company took into consideration its size, factors for other public companies
in similar markets and qualitative factors in developing discount rates.


                                       38
<PAGE>


7. INVENTORIES

Inventories consist of the following:

                                                FINISHED
                   RAW           WORK-IN      PRODUCTS AND
                MATERIALS        PROCESS       COMPONENTS         TOTAL
                ---------        -------       ----------         -----
DECEMBER 31,

2004
Domestic...... $1,635,079      $  668,059      $  863,320      $3,166,458
Foreign.......    605,115         340,647         175,423       1,121,185
               ----------      ----------      ----------      ----------

  Total....... $2,240,194      $1,008,706      $1,038,743      $4,287,643
               ==========      ==========      ==========      ==========

2003
Domestic...... $2,222,071      $1,248,009      $  931,912      $4,401,992
Foreign.......    864,056         302,489         141,105       1,307,650
               ----------      ----------      ----------      ----------

  Total....... $3,086,127      $1,550,498      $1,073,017      $5,709,642
               ==========      ==========      ==========      ==========


8. NOTES PAYABLE AND LONG-TERM DEBT

NOTES PAYABLE
Notes payable at December 31, 2004, and 2003 are summarized below:

                                           2004               2003
                                         --------           --------
Notes payable:
  Short term borrowings, Europe.......  $       --         $1,473,618
  Short-term borrowings, domestic.....   3,171,447          4,258,253
  Short-term borrowings, Singapore....     568,946            538,792
                                        ----------         ----------

  Total notes payable.................  $3,740,393         $6,270,663
                                        ==========         ==========

In July 2003, the Company's French subsidiary, Selas SAS filed insolvency in
France. Short-term debt in the amount of $7,852,000 was assumed by domestic
operations. $6,378,000 was subsequently paid against the facility from proceeds
of the sale of its Tire Holder and Lift business. European borrowings had
pertained to Selas SAS, the Company's French subsidiary that filed insolvency.
This debt was guaranteed by the Company and has been transferred to domestic
operations subsequent to December 31, 2003. During 2004, the debt was refinanced
and is now included with the Company's long term debt.

For domestic operations, the maximum amounts of short-term borrowings and bank
guarantees at any month end were $6,462,000 in 2004, $13,270,000 in 2003, and
$11,365,000 in 2002. The average short-term borrowings and bank guarantees
outstanding during 2004, 2003 and 2002 amounted to $3,681,000, $10,227,000 and
$9,512,000, respectively. The average short-term interest rates in 2004, 2003
and 2002 for outstanding borrowings were 7.2 percent, 4.2 percent, and 5.2
percent, respectively.

The maximum amounts of short-term borrowings on the domestic facility at any
month end in 2004 were $3,685,000. The average short-term borrowings outstanding
during 2004 were $3,205,000. The average short-term interest rate on the
facility in 2004 was 7.30 percent.

A subsidiary of The Company located in Singapore has three credit facilities
with a combined limit totaling $1,098,000, of which $553,000 was outstanding at
December 31, 2004. Maximum borrowings were $553,000 and average borrowings were
$413,000. Borrowings under the three facilities on December 31, 2004, carried an
average interest rate of 5.34 percent, payable monthly. The Singapore credit
facilities have no specific term date, but are reviewed annually.


                                       39
<PAGE>

LONG-TERM DEBT
Long-term debt at December 31, 2004, and 2003 is summarized below:

                                  2004              2003
                                --------          --------
Long-term debt:
  Term loans, domestic.......  $1,458,204       $1,966,800
  Less: current maturities...   1,458,204        1,966,800
                               ----------       ----------

                               $       --       $       --
                               ==========       ==========

In 2004, the Company consolidated its short-term European and some of its
domestic borrowings into a $5,508,000 domestic term loan. The terms of the
domestic loan agreement required quarterly principal payments of $300,000 on the
term loan. In addition, as required by the loan agreement, the Company paid down
a large portion of this loan using proceeds from the sale of its property in
Dresher, Pennsylvania. At December 31, 2004, the domestic borrowings under the
credit agreement bore interest, payable monthly, at 8.25 percent (prime plus 3.0
percent).


CREDIT FACILITIES

In 2004, the Company did not meet certain covenants during the first, and fourth
quarters, for which it obtained waivers from the bank.

On March 30, 2005, the Company entered into amended agreements for its domestic
revolver and long-term debt. The new facility provides the Company with a
revolving credit limit of $4.5 million which was reduced to $4.0 million upon
the sale of burners and components business in the first quarter of 2005. A
portion of the proceeds from the sale of the Burners and Components business was
used to payoff the approximately $1.5 million outstanding principal balance on
the term loan. These facilities expire on April 1, 2006. The interest rate on
these facilities is prime plus 3.0 percent, the terms of the agreement increase
this rate to prime plus 3.5 percent on July 1, 2005, prime plus 4.0 percent on
October 1, 2005 and prime plus 4.5 percent on January 1, 2006.

A commitment fee of .25% per annum is payable on the unborrowed portion of the
revolving credit facility. In addition, the Company was required to pay a
commitment fee of $45,000, of which $25,000 was due upon closing, with $5,000
due at the end of each of the next four quarters.

In connection with the amended agreement, the Company has pledged as collateral
substantially all of the assets of its domestic subsidiaries with a book value
totaling approximately $8.6 million.

The domestic term loan and the revolving credit facility are secured by the
Company's domestic assets and the Company's domestic subsidiaries' stock. The
agreements contain restrictive covenants regarding the payment of cash
dividends, incurrence of additional debt, issuance of equity, maintenance of
working capital, net worth, shareholders' equity, and capital equipment
expenditures along with the maintenance of certain financial ratios. The Company
and its domestic subsidiaries are required to maintain consolidated tangible
capital funds of at least $6.5 million, a consolidated current ratio of at least
1.0, and a consolidated fixed charge coverage ratio of at least 1.0 on a
year-to-date basis, which will be calculated excluding mandatory principal
repayments. In addition the Company is required to maintain a ratio of
consolidated total liabilities to consolidated tangible capital funds of 3.0,
which was reset to 2.25 after the sale of the Burners and Components business in
the first quarter of 2005. At December 31, 2004, the Company was in compliance
with all covenants of the amended agreement. Management believes that the
Company will be able to maintain the amended covenants through April 1, 2006.

The Company's ability to pay the principal and interest on its indebtedness as
it comes due will depend on the Company's current and  future performance.
Performance is affected by general economic conditions and by financial,
competitive, political, business and other factors. Many of these factors are
beyond the Company's control. The Company believes that the amended credit
facility combined with funds expected to be generated from operations, the sale
of assets, the available borrowing capacity through its revolving credit loan
facilities, the potential sale of certain  assets  curtailment of the dividend
payment and control of


                                       40
<PAGE>

capital spending will be sufficient to meet its anticipated cash requirements
for operating needs through April 1, 2006. If, however, the Company does not
generate sufficient cash or complete such financings on a timely basis, we may
be required to seek additional financing or sell equity on terms which may not
be available or which may be available only on unfavorable terms. No assurance
can be given that any refinancing, additional borrowing or sale of equity will
be possible when needed or that the Company will be able to negotiate acceptable
terms. In addition, the Company's access to capital is affected by prevailing
conditions in the financial and equity capital markets, as well as its own
financial condition.

The fair value of the Company's debt is estimated using standard pricing models
that take into consideration the present value of future cash flows as of the
balance sheet date. Since the interest rates on the majority of the Company's
long-term debt at December 31, 2004, were renegotiated in March 2005 and mature
within 16 months of the balance sheet date, the carrying value approximates the
fair value.



9. OTHER ACCRUED LIABILITIES

Other accrued liabilities at December 31, 2004, and 2003 are as follows:

                                                        2004          2003
                                                      --------      --------

Salaries, wages and commissions..................... $1,889,769   $1,522,232
Taxes, including payroll withholdings and
  excluding income taxes............................     45,112       48,788
Accrued severance benefits..........................    100,000      175,000
Accrued professional fees...........................    230,756      281,223
Amount due buyer of French subsidiary (see note 3)..         --      796,130
Other...............................................    373,252      593,107
                                                     ----------   ----------

                                                     $2,638,889   $3,416,480
                                                     ==========   ==========


10. DOMESTIC AND FOREIGN INCOME TAXES

Domestic and foreign income taxes (benefits) are comprised as follows:

                                            YEARS ENDED DECEMBER 31,
                                  -------------------------------------------
                                    2004             2003             2002
                                 (restated)       (restated)       (restated)
                                  --------         --------         --------
Current
    Federal.................... $    45,433      $  (709,294)     $  (697,283)
    State......................       5,500            6,521          (74,530)
    Foreign....................     183,248           39,632         (163,477)
                                -----------      -----------      -----------
                                    234,181         (663,141)        (935,290)
                                -----------      -----------      -----------
Deferred
    Federal....................     890,230          510,318         (194,115)
    State......................          --          556,962          (30,152)
    Foreign....................      15,386           80,460               --
                                -----------      -----------      -----------

                                    905,616        1,147,740         (224,267)
                                -----------      -----------      -----------

Income taxes (benefit)......... $ 1,139,797      $   484,599      $(1,159,557)
                                ===========      ===========      ===========

Income (loss) before income
  taxes is as follows:
    Foreign.................... $   663,685      $   373,595      $  (433,396)
    Domestic...................  (1,429,125)      (3,908,538)      (2,528,461)
                                -----------      -----------      -----------

                                $  (765,440)     $(3,547,786)     $(2,974,700)
                                ===========      ===========      ===========


                                       41
<PAGE>




The following is a reconciliation of the statutory federal income tax rate to
the effective tax rate based on income (loss):

                                                     YEARS ENDED 31
                                                     --------------
                                             2004        2003         2002
                                          (restated)  (restated)   (restated)
                                           --------    --------     --------
Tax provision at statutory rate..........    34.0%       34.0%       34.0%
Change in valuation allowance............  (187.0)      (48.7)         --
Effect of foreign tax rates..............     3.5          .1          .4
State taxes net of federal benefit.......     (.6)        (.2)        3.1
Tax benefits related to export sales.....     3.6         1.6         1.9
Other....................................    (2.4)        (.4)        (.4)
                                            -----        ----        ----

Domestic and foreign income tax rate.....  (148.9)%     (13.6)%      39.0%
                                            =====        ====        ====




The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2004,
and 2003 are presented below:

<TABLE>
<CAPTION>
                                                                                       2004              2003
                                                                                       ----              ----
<S>                                                                             <C>                <C>
Deferred tax assets:
    Net operating loss carry forwards........................................   $ 5,811,346        $5,635,490
    Post-retirement benefit obligations......................................     1,143,141         1,198,465
    Goodwill amortization....................................................       566,462           648,899
    State income taxes.......................................................       605,554           605,554
    Inventory reserves.......................................................       497,244           359,019
    Guarantee obligations and estimated future costs of service accruals.....        85,996            53,006
    Compensated absences, principally due to accrual for financial
       reporting purposes....................................................       154,713           159,126
    Other....................................................................       180,206           157,791
                                                                                -----------        ----------
       Total gross deferred tax assets.......................................     9,044,662         8,817,350
       Less:  valuation allowance............................................     8,317,505         7,211,013
                                                                                -----------        ----------
       Net deferred tax assets...............................................       727,157         1,606,337
                                                                                -----------        ----------
Deferred tax liabilities:
    Plant and equipment, principally due to differences in depreciation and
       capitalized interest..................................................      (609,315)         (600,815)
    Other....................................................................      (261,744)         (238,821)
                                                                                -----------        ----------
    Total gross deferred tax liabilities.....................................      (871,059)         (839,636)
                                                                                -----------        ----------
    Net deferred tax assets (liabilities)....................................   $  (143,902)       $  766,701
                                                                                ===========        ==========
</TABLE>

Domestic and foreign deferred taxes are comprised as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 2004                                       FEDERAL              STATE             FOREIGN              TOTAL
                                                        -------              -----             -------              ------
<S>                                                   <C>                  <C>               <C>                <C>

Current deferred asset.............................   $      --            $    --           $      --          $      --
Non-current deferred asset (liability).............          --                 --            (143,902)          (143,902)
                                                      ---------            -------           ---------          ---------

Net deferred tax asset (liability).................   $      --            $    --           $(143,902)         $(143,902)
                                                      =========            =======           =========          =========


 DECEMBER 31, 2003                                      FEDERAL              STATE            FOREIGN               TOTAL
                                                        -------              -----             -------              ------

Current deferred asset.............................   $ 890,230            $    --           $     --           $ 890,230
Non-current deferred asset (liability).............          --                 --            (123,529)          (123,529)
                                                      ---------            -------           ---------          ---------

Net deferred tax asset.............................   $ 890,230            $    --           $(123,529)         $ 766,701
                                                      =========            =======           =========          =========
</TABLE>


                                       42
<PAGE>

The net change in the total valuation allowance for the year ended December 31,
2004 was an increase of approximately $1.1 million. A portion of the 2004 net
operating loss from continuing operations was utilized to offset income from
discontinued operation and, therefore, is not included in the effective tax rate
reconciliation. As a result, the change in the valuation allowance reflected in
the disclosure of deferred tax assets and liabilities does not agree to the
change reflected in the effective tax rate reconciliation. The valuation
allowance is maintained against deferred tax assets which the Company has
determined are not likely to be realized. In addition, the Company has net
operating loss carryforwards for Federal tax purposes of approximately $16.4
million that begin to expire in 2022. Subsequently recognized tax benefits, if
any, relating to the valuation allowance for deferred tax assets or realization
of net operating loss carryforwards will be reported in the consolidated
statements of operations.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, historical taxable income
including available net operating loss carryforwards to offset taxable income,
and projected future taxable income in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, along with
reasonable and prudent tax planning strategies and the expiration dates of
carryforwards, management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the existing
valuation allowances, at December 31, 2004.

11. EMPLOYEE BENEFIT PLANS

The Company has defined contribution plans for most of its domestic employees.
Under these plans, eligible employees may contribute amounts through payroll
deductions supplemented by employer contributions for investment in various
investments specified in the plans. The Company contribution to these plans for
2004, 2003 and 2002 was $267,796, $277,378 and $276,769 respectively.

The Company provides post-retirement medical benefits to certain domestic
full-time employees who meet minimum age and service requirements. In 1999, a
plan amendment was instituted which limits the liability for post-retirement
benefits beginning January 1, 2000 for certain employees who retire after that
date. This plan amendment resulted in a $1.1 million unrecognized prior service
cost reduction which will be recognized as employees render the services
necessary to earn the post-retirement benefit. The Company's policy is to pay
the cost of these post-retirement benefits when required on a cash basis. The
Company also has provided certain foreign employees with retirement related
benefits.

The following table presents the amounts recognized in the Company's
consolidated balance sheet at December 31, 2004 and 2003 for post-retirement
medical benefits:

                                                          2004             2003
                                                          ----             ----
Change in Projected Benefit Obligation
Projected benefit obligation at January 1......... $ 2,142,274      $ 2,016,995
Service cost (excluding administrative expenses)..      25,246           25,461
Interest cost.....................................     110,231          131,506
Amendments........................................          --               --
Actuarial (gain) loss.............................    (177,901)         124,093
Benefits paid.....................................    (178,217)        (155,781)
                                                   -----------      -----------

Projected benefit obligation at December 31.......   1,921,633        2,142,274
                                                   -----------      -----------

Change in Fair Value of Plan Assets
Employer contribution.............................     178,217          155,781
Benefits paid.....................................    (178,217)        (155,781)
                                                   -----------      -----------

Fair value of plan assets at December 31..........          --               --
                                                   -----------      -----------

Funded status.....................................   1,921,633        2,142,274
Unrecognized net actuarial gain (loss)............     (42,760)        (135,141)
Unrecognized prior service cost...................    (745,713)         820,284
                                                   -----------      -----------

Accrued post-retirement benefit cost.............. $ 2,710,106      $ 2,827,417
                                                   ===========      ===========


                                       43
<PAGE>

Accrued post-retirement medical benefit costs are classified as other
post-retirement benefit obligations as of December 31, 2004 and 2003.

Net periodic post-retirement medical benefit costs for 2004, 2003 and 2002
include the following components:

<TABLE>
<CAPTION>
                                                         2004         2003         2002
                                                         ----         ----         ----
<S>                                                 <C>          <C>          <C>
Service cost .....................................  $  25,246    $  25,461    $  29,676
Interest cost.....................................    110,231      131,506      132,800
Amortization of unrecognized prior service cost...    (74,571)     (71,575)     (71,575)
                                                    ---------    ---------    ---------

Net periodic post-retirement medical benefit cost.  $  60,906    $  85,392    $  90,901
                                                    =========    =========    =========
</TABLE>

For measurement purposes, a 10.0% annual rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) was assumed for 2004;
the rate was assumed to decrease gradually to 5% by the year 2009 and remain at
that level thereafter. The health care cost trend rate assumption may have a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated post-retirement medical benefit obligation as of December 31,
2004 by $180,095 and the aggregate of the service and interest cost components
of net periodic post-retirement medical benefit cost for the year ended December
31, 2004 by $13,861.



The assumptions used years ended December 31 were as follows:
                                                           2004          2003
                                                           ----          ----
Annual increase in cost of benefits                       10.00%        11.00%
Discount rate used to determine year-end obligations       5.75%         6.00%
Discount rate used to determine year-end expense           6.00%         6.75%


The following benefit payments, which reflect expected future service, are
expected to be paid:

           2005........................  $ 178,412
           2006........................  $ 175,558
           2007........................  $ 163,888
           2008........................  $ 163,160
           2009........................  $ 164,423
           Years 2010 - 2014...........  $ 759,595

The Company provides retirement related benefits to former executive employees
and to certain employees of foreign subsidiaries. The liabilities established
for these benefits at December 31, 2004 and 2003 are illustrated below.

                                                          2004           2003
                                                          ----           ----

Current portion..................................... $ 104,861      $ 104,861
Long term portion...................................   795,852        685,757
                                                     ---------      ---------

Total liability at December 31...................... $ 900,713      $ 790,618
                                                     =========      =========


                                       44
<PAGE>


12. CURRENCY TRANSLATION ADJUSTMENTS

All assets and liabilities of foreign operations are translated into U.S.
dollars at prevailing rates of exchange in effect at the balance sheet date.
Revenues and expenses are translated using average rates of exchange for the
year. The functional currency of the Company's foreign operations is the
currency of the country in which the entity resides; such currencies are the
European euro, and the Singapore dollar. Adjustments resulting from the process
of translating the financial statements of foreign subsidiaries into U.S.
dollars are reported as a separate component of shareholders' equity, net of
tax, where appropriate. As a result of the insolvency of the Company's French
subsidiary Selas SAS, a considerable amount of Euro denominated debt, has been
recorded by the parent company. This debt is adjusted as of the balance sheet
date to reflect fluctuations in the Euro exchange rate. Gains and losses arising
from foreign currency transactions are reflected in the consolidated statements
of operations as incurred. This debt was refinanced in 2004, as a result, as of
December 31, 2004 the Company no longer has any Euro denominated debt. Foreign
currency transaction amounts included in the statements of operation include a
gain of $14,000 in 2004 and losses of $141,000 and $23,000 in 2003 and 2002,
respectively








                                       45
<PAGE>


13. COMMON STOCK AND STOCK OPTIONS

Under the various plans, executives, employees and outside directors receive
awards of options to purchase common stock. Under all awards, the terms are
fixed at the grant date. Generally, the exercise price equals the market price
of the Company's stock on the date of the grant. Options under the plans
generally vest from one to five years, and the option's maximum term is 10
years. Options issued to directors vest from one to three years.

Stock option activity during the periods indicated is as follows:

                                                                Weighted-average
                                              Number of Shares   Exercise Price
                                              ----------------   --------------

Outstanding at January 1, 2002................    619,400            $6.63
    Options forfeited.........................   (100,350)            5.99
    Options granted...........................    192,500             1.99
                                                ---------

Outstanding at December 31, 2002..............    711,550            $5.48
    Options forfeited.........................    (93,400)            7.34
    Options expired...........................   (151,250)            5.32
    Options granted...........................     75,000             3.05
                                                ---------

Outstanding at December 31, 2003..............    541,900            $4.86
    Options forfeited.........................   (127,000)            3.07
    Options granted...........................    246,000             2.70
                                                ---------

Outstanding at December 31, 2004..............    660,900            $4.40

Exercisable at end of year....................    380,215
                                                =========

Available for future grant at January 1, 2004.  1,608,100
Available for future grant at
  December 31, 2004...........................  1,489,100
                                                =========

The weighted-average per share fair market value of options granted was $2.22,
$1.67, and $.92, in 2004, 2003, and 2002, respectively, using the Black-Scholes
option-pricing model. For more information on the assumptions used in the
Black-Scholes option-pricing model, please refer to note 1, "Stock Option Plan".

The following summarizes information about the Company's stock options
outstanding at December 31, 2004:

<TABLE>
<CAPTION>
                               Outstanding Options                       Options Exercisable
                 ---------------------------------------------       ---------------------------
                                    Weighted          Weighted                          Weighted
  Range of         Number            Average           Average          Number          Average
  Exercise       Outstanding        Remaining         Exercise       Exercisable        Exercise
   Prices        At 12/31/04     Contractual Life       Price        At 12/31/04         Price
   ------        -----------     ----------------       -----        -----------         -----
<C>      <C>       <C>                  <C>            <C>              <C>             <C>
$2.05 -  2.35      233,500              8.36            $2.19            83,575          $2.12
$2.93 -  3.70      233,800              7.82            $3.10           103,040          $3.21
$5.35 -  5.35       57,000              1.00            $5.35            57,000          $5.35
$9.06 - 10.50      136,600              4.00           $10.02           136,600         $10.02
</TABLE>


                                       46
<PAGE>

14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)


As described in Note 2, "Restatement of Financial Statements", we have made
corrections to our consolidated statements of operations related to accounting
for research and development cost. The effect of the Restatement on our
quarterly results of operations in 2004 and 2003 is presented in an accompanying
table.

The following is a tabulation of unaudited quarterly results of operations (in
thousands, except for per share data).

<TABLE>
<CAPTION>
                                                        2004 (a)                                     2003 (a)
                                                        ----                                         ----
                                       First     Second      Third     Fourth      First     Second      Third     Fourth
                                      Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                                     (restated) (restated) (restated) (restated) (restated) (restated) (restated) (restated)
                                     ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

<S>                                    <C>        <C>        <C>       <C>         <C>        <C>        <C>        <C>
Sales, net (b)......................   $9,338     $8,354     $8,524    $ 8,965     $8,993     $9,675     $9,232     $8,302

Gross profit........................    2,421      2,058      1,675      1,908      2,632      2,739      2,437        756

Income (loss) from continuing
    operations net of tax...........     (714)     1,359       (975)    (1,576)      (106)      (123)    (1,748)    (2,055)
 Income (loss) from discontinued
    operations net of tax (b).......      (79)       609        286        554       (176)    (1,189)       870       (518)
 Extraordinary gain from
    discontinued operations.........       --         --        684         --         --         --         --         --
Net income (loss)...................     (793)     1,968         (5)    (1,022)      (281)    (1,312)      (878)    (2,573)

Earnings (loss) per share (c):
Basic income (loss) per share
    Continuing operations...........   $ (.14)    $  .26     $ (.19)   $  (.31)    $ (.01)    $ (.03)    $ (.34)    $ (.40)
    Discontinued operations.........     (.02)       .12        .06        .11       (.03)      (.23)       .17       (.10)
    Extraordinary gain from
       discontinued operations......      ---        ---        .13        ---        ---        ---        ---        ---
    Net loss........................   $ (.16)    $  .38     $   --    $  (.20)    $ (.04)    $ (.26)    $ (.17)    $ (.50)
                                       ======     ======     ======    =======     ======     ======     ======     ======

   Diluted income (loss) per share
    Continuing operations...........   $ (.14)    $  .26     $ (.19)   $  (.31)    $ (.01)    $ (.03)    $ (.34)    $ (.40)
    Discontinued operations.........     (.02)       .12        .06        .11       (.03)      (.23)       .17       (.10)
    Extraordinary gain from
       discontinued operations......      ---        ---        .13        ---         ---       ---        ---        ---
    Net loss........................   $ (.16)    $  .38     $   --    $  (.20)    $ (.04)    $ (.26)    $ (.17)    $ (.50)
                                       ======     ======     ======    =======     ======     ======     ======     ======
</TABLE>


a) The effect of the Restatement on our quarterly income from continuing
   operations net of tax and our quarterly net income for 2004 was $11,000 for
   the first quarter; ($29,000) for the second quarter; ($6,000) for the third
   quarter; and $77,000 for the fourth quarter. The effect of the Restatement
   for 2003 was ($45,000) for the first quarter; $19,000 for the second
   quarter; ($68,000) for the third quarter; and $24,000 for the fourth
   quarter.

b) Per share amounts for the quarters have each been calculated separately.
   Accordingly, quarterly amounts may not add to the annual amounts because of
   differences in the average common shares outstanding during each period.
   Additionally, in regard to diluted per share amounts only, quarterly
   amounts may not add to the annual amounts.

c) The Company reclassified its Heat Technology business, as discontinued
   operations in the fourth quarter of 2004; this includes the burners and
   components portion of the business which the Company sold in the first
   quarter of 2005. The Company' Tire Holders, Lifts and Related Products
   business was also included in discontinued operations until it was sold in
   July 2003. Accordingly, the historical financial information has been
   reclassified. See note 2 to the consolidated financial statements.


                                       47
<PAGE>




15. INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted loss per
share:

<TABLE>
<CAPTION>
                                      2004                               2003                                2002
                       -------------------------------     ---------------------------------  ---------------------------------

                                                 Per                                                                     Per
                        Income       Shares     Share        Loss        Shares    Per Share    Loss        Shares      Share
                       Numerator   Denominator  Amount     Numerator   Denominator   Amount   Numerator   Denominator   Amount
                       ---------   -----------  ------     ---------   -----------   ------   ---------   -----------   ------
<S>                     <C>         <C>          <C>     <C>             <C>         <C>    <C>             <C>          <C>
BASIC LOSS
   PER SHARE

Income (loss)
available to common
shareholders            $147,826    5,129,214    $ .03   $(5,045,322)    5,124,433   $(.98) $(21,787,197)   5,119,214    $(4.25)
                                                 =====                               =====                               ======

EFFECT OF DILUTIVE
    SECURITIES

Stock options                ---        2,627                    ---           ---                   ---          ---
                        --------    ---------            -----------     ---------          ------------   ----------

DILUTED LOSS
 PER SHARE              $ 47,826    5,131,841    $ .03   $(5,045,322)    5,124,433   $(.98) $(21,787,197)   5,119,214    $(4.25)
                        ========    =========    =====   ===========     =========   =====  ============    =========    ======
</TABLE>


The Company excluded stock options of 367,800, 348,300, 0, in 2004, 2003, and
2002, respectively, from the computation of the diluted loss per share as their
effect would be anti-dilutive. For additional disclosures regarding the stock
options, see note 13.

16. CONTINGENCIES AND COMMITMENTS.

The Company is a defendant along with a number of other parties in approximately
123 lawsuits as of December 31, 2004, (approximately 101 lawsuits as of December
31, 2003) alleging that plaintiffs have or may have contracted asbestos-related
diseases as a result of exposure to asbestos products or equipment containing
asbestos sold by one or more named defendants. Due to the noninformative nature
of the complaints, the Company does not know whether any of the complaints state
valid claims against the Company. Certain carriers have informed the Company
that the primary policies for the period August 1, 1970-1973, have been
exhausted and that the carriers will no longer provide a defense under those
policies. The Company has requested that the carriers substantiate this
situation. The Company believes it has additional policies available for other
years which have been ignored by the carriers. As settlement payments are
applied to all years a litigant was deemed to have been exposed to asbestos, the
Company believes when settlement payments are applied to these additional
policies, the Company will have availability under the years deemed exhausted.
The Company does not believe that the asserted exhaustion of the primary
insurance coverage for this period will have a material adverse effect on its
financial condition, liquidity, or results of operations. Management believes
that the number of insurance carriers involved in the defense of the suits and
the significant number of policy years and policy limits, to which these
insurance carriers are insuring the Company, make the ultimate disposition of
these lawsuits not material to the Company's consolidated financial position or
results of operations.

The Company is also involved in other lawsuits arising in the normal course of
business. While it is not possible to predict with certainty the outcome of
these matters, management is of the opinion that the disposition of these
lawsuits and claims will not materially affect the Company's consolidated
financial position, liquidity or results of operations.

                                       48

<PAGE>

Total rent expense for 2004, 2003 and 2002 under leases pertaining primarily to
engineering, manufacturing, sales and administrative facilities, with an initial
term of one year or more, aggregated $1,156,000, $1,096,000, and $1,023,000,
respectively. Remaining rentals payable under such leases are as follows: 2005 -
$977,000; 2006 - $928,000; 2007 - $810,000; 2008 - $700,000; 2009 - $368,000 and
thereafter - $675,000.


17. RELATED-PARTY TRANSACTIONS

One of the Company's subsidiaries leases office and factory space from a
partnership consisting of three present or former officers of the subsidiary,
including Mark Gorder, the President and Chief Executive Officer of the Company.
The subsidiary is required to pay all real estate taxes and operating expenses.
In the opinion of management, the terms of the lease agreement are comparable to
those which could be obtained from unaffiliated third parties. The total rent
expense incurred under the lease was approximately $368,000 for 2004, $336,000
for 2003 and $330,000 for 2002. Annual lease commitments approximate $368,000
through October 2011.

18. SUBSEQUENT EVENT

On March 31, 2005 the Company sold its burner and component business. This
business consisted of the operating assets and liabilities of Selas Corporation
of America (Dresher, Pennsylvania), Nippon Selas (Tokyo, Japan) and Selas
Waermetechnik (Ratingen, Germany). The total purchase price was approximately
$3.6 million, subject to adjustment, of which approximately $2.7 million was
paid in cash and $900,000 was paid in the form of a subordinated promissory
note. A portion of the proceeds from the transactions were used to pay off the
Company's domestic $1.5 million term loan as required by its loan agreement. The
remaining proceeds were primarily used to reduce the Company's outstanding
balance on its revolving credit facility. Commensurate with the transaction, the
Company reduced its maximum availability under its revolving credit facility
from $4.5 million to $4 million (see note 8).

With the completed sale of the burner and components business, the Company has
completed the shift from its traditional business segments to the emerging
prospects in its precision miniature medical and electronic products business.
To reflect the Company's redefined focus, it has changed it name to IntriCon
Corporation.

19. STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information:

                                     YEARS ENDED DECEMBER 31,
                                     ------------------------
                                2004           2003           2002
                                ----           ----           ----
Interest received.........  $  3,091       $  7,455       $ 20,990
Interest paid.............  $431,148       $507,157       $688,885
Income taxes paid.........  $ 44,070       $ 38,969       $321,121




                                       49

<PAGE>


  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



  The Board of Directors and Shareholders
  IntriCon Corporation:


  We have audited the accompanying consolidated balance sheets of IntriCon
  Corporation (formerly Selas Corporation of America) and subsidiaries as of
  December 31, 2004 and 2003, and the related consolidated statements of
  operations, shareholders' equity and comprehensive income (loss) and cash
  flows for each of the years in the three-year period ended December 31, 2004.
  These consolidated financial statements are the responsibility of the
  Company's management. Our responsibility is to express an opinion on these
  consolidated financial statements based on our audits.

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

  In our opinion, the consolidated financial statements referred to above
  present fairly, in all material respects, the financial position of IntriCon
  Corporation and subsidiaries as of December 31, 2004 and 2003, and the results
  of their operations and their cash flows for each of the years in the
  three-year period ended December 31, 2004, in conformity with U.S. generally
  accepted accounting principles.

  As discussed in note 2 to the consolidated financial statements, the Company
  has restated its consolidated financial statements as of December 31, 2004 and
  2003 and for each of the years in the three-year period ended December 31,
  2004.

  As discussed in note 1 to the consolidated financial statements, the Company
  adopted Statement of Financial Accounting Standards No. 142 "Goodwill and
  Other Intangible Assets" on January 1, 2002.



  /s/ KPMG LLP

  Minneapolis, Minnesota
  March 18, 2005, except as to notes 3, 4, 8 and 18
    which are as of March 31, 2005 and note 2 which is
    as of June 24, 2005


                                       50

<PAGE>





DIRECTORS                                 EXECUTIVE OFFICERS

Michael J. McKenna                        Mark S. Gorder
Chairman of IntriCon Board,               President and Chief Executive Officer,
Retired Vice Chairman, President          Resistance Technology, Inc. and
and Director, Crown Cork & Seal           President and Chief Executive Officer
Company Inc.                              IntriCon Corporation


Nicholas A. Giordano
Business Consultant,
Former Chairman and Chief Executive Officer
Philadelphia Stock Exchange



Mark S. Gorder
President and Chief Executive Officer
IntriCon Corporation

Robert N. Masucci
Chief Executive Officer, Barclay Brand
Ferndon, Inc, and Chairman of Montgomery
Capital Advisors, Inc.





                                  LEGAL COUNSEL

                                 Blank Rome LLP
                           Philadelphia, Pennsylvania

                                    AUDITORS

                                    KPMG LLP
                             Minneapolis, Minnesota


                          TRANSFER AGENT AND REGISTRAR

                                   Stock Trans
                            44 West Lancaster Avenue
                           Ardmore, Pennsylvania 19003
                               www.stocktrans.com
                                 1-800-733-1121




<PAGE>



                              INTRICON CORPORATION
                                  HEADQUARTERS
                                1260 RED FOX ROAD
                          ARDEN HILLS, MINNESOTA 55112
                               PHONE: 651-636-9770
                                FAX: 651-636-8944
                                WWW.INTRICON.COM




Resistance Technology, Inc.                     RTI Tech PTE LTD
1260 Red Fox Road                               26 Ayer Rajah Crescent
Arden Hills, Minnesota 55112                    #04-04
www.rti-corp.com                                Singapore 139944

RTI Electronics, Inc.                           Resistance Technology Gmbh
1800 Via Burton Street                          Arabellastrasse 17/4
Anaheim, California 92806                       8000 Munich, Germany


























<PAGE>








                              INTRICON CORPORATION
              WORLDWIDE HEADQUARTERS - ARDEN HILLS, MINNESOTA 55112
                       PHONE 651-636-9770 FAX 651-636-8944
                                WWW.INTRICON.COM