Table of Contents





# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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# FORM 10-Q

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(MARK ONE)

x   
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2006

OR

o   
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

# FOR THE TRANSITION PERIOD FROM ________________ to ________________

# COMMISSION FILE NUMBER 1-5005

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INTRICON CORPORATION
(Exact Name of Registrant as Specified in its Charter)

|PENNSYLVANIA                    |  | 23-1069060                        | 
|------------------------------- |  | --------------------------------- | 
|(State or Other Jurisdiction of |  | (IRS Employer Identification No.) | 
|Incorporation or Organization)  | 

|1260 RED FOX ROAD, ARDEN HILLS, MINNESOTA 55112
(Address of Principal Executive Offices) | (651) 636-9770
(Registrants Telephone Number,Including Area Code)
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------

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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)


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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

x
YES     
o
NO

Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act (check one):

|Large Accelerated Filero | Accelerated Filero | Non-accelerated Filerx
|------------------------ | ------------------ | ----------------------

Indicate by check mark whether the Registrant is a shell company (as defined
by Rule 12b-2 of the Exchange Act)

o
YES     
x
NO

Indicate the number of shares outstanding of each of the Issuers
classes of common stock, as of the latest practicable date.

|COMMON SHARES, $1.00 PAR VALUE |  | 5,151,942 (exclusive of 515,754 | 
|------------------------------ |  | ------------------------------- | 
|CLASS                          |  | treasury shares)                | 
|                               |  | OUTSTANDING AT May 3, 2005      | 





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# INTRICON CORPORATION

# I N D E X

|                                 |                                                                                                                | PageNumbers                                                                          
|-------------------------------- | -------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------
|                                 |                                                                                                                |                                                                                      
|PART I:    FINANCIAL INFORMATION
|                                
|Item 1.                          |                                                                                                                | Financial Statements                                                                 
|                                
|                                 | Consolidated Condensed Balance Sheets as of March 31, 2006 (Unaudited) and December 31, 2005                   |                                                                                      
|                                
|                                 | Consolidated Condensed Statements of Operations (Unaudited) for the Three Months Ended March 31, 2006 and 2005 |                                                                                      
|                                
|                                 | Consolidated Condensed Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2006 and 2005 |                                                                                      
|                                
|                                 | Notes to Consolidated Condensed Financial Statements (Unaudited)                                               |                                                                                      
|                                
|Item 2.                          |                                                                                                                | Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                
|Item 3.                          |                                                                                                                | Quantitative and Qualitative Disclosures About Market Risk                           
|                                
|Item 4.                          |                                                                                                                | Controls and Procedures                                                              
|                                
|PART II:    OTHER INFORMATION   
|                                
|Item 1.                          |                                                                                                                | Legal Proceedings                                                                    
|                                
|Item 1A.                         |                                                                                                                | Risk Factors                                                                         
|                                
|Item 2.                          |                                                                                                                | Unregistered Sales of Equity Securities and Use of Proceeds                          
|                                
|Item 3.                          |                                                                                                                | Defaults Upon Senior Securities                                                      
|                                
|Item 4.                          |                                                                                                                | Submission of Matters to a Vote of Security Holders                                  
|                                
|Item 5.                          |                                                                                                                | Other Information                                                                    
|                                
|Item 6.                          |                                                                                                                | Exhibits                                                                             

2

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Table of Contents

# PART I:   FINANCIAL INFORMATION

|ITEM 1. |  | Financial Statements
|------- |  | --------------------

# INTRICON CORPORATION
Consolidated Condensed Balance Sheets
Assets

|                                                                                 | March 31,2006(Unaudited) |  | December 31,2005
|-------------------------------------------------------------------------------- | ------------------------ |  | ----------------
|Current assets:                                                                  |                          |  |                 
|                                                                                
|Cash                                                                             |                          |  | $               
|                                                                                
|Restricted cash                                                                  |                          |  |                 
|                                                                                
|Accounts receivable (less allowance for doubtful accounts of $380,000            |                          | 
|in 2006 and $370,000 in 2005)                                                    |                          |  |                 
|                                                                                
|Inventories                                                                      |                          |  |                 
|                                                                                
|Refundable income tax                                                            |                          |  |                 
|                                                                                
|Other current assets                                                             |                          |  |                 
|                                                                                 |                          |  |                 
|                                                                                
|Total current assets                                                             |                          |  |                 
|                                                                                
|Property, plant and equipment:                                                  
|                                                                                
|Land                                                                             |                          |  |                 
|Buildings                                                                        |                          |  |                 
|Machinery and equipment                                                          |                          |  |                 
|                                                                                 |                          |  |                 
|                                                                                
|                                                                                 |                          |  |                 
|                                                                                
|Less:   Accumulated depreciation                                                 |                          |  |                 
|                                                                                 |                          |  |                 
|                                                                                
|Net property, plant and equipment                                                |                          |  |                 
|                                                                                
|Note receivable from sale of discontinued operations, less allowance of $296,000 |                          |  |                 
|                                                                                
|Goodwill                                                                         |                          |  |                 
|                                                                                
|Other assets, net                                                                |                          |  |                 
|                                                                                 |                          |  |                 
|                                                                                
|                                                                                 |                          |  | $               
|                                                                                 |                          |  |                 

(See accompanying notes to the consolidated condensed financial statements)

3

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Table of Contents

# INTRICON CORPORATION
Consolidated Condensed Balance Sheets
Liabilities and Shareholders Equity

|                                                | March 31,2006(Unaudited) |  | December 31,2005
|----------------------------------------------- | ------------------------ |  | ----------------
|Current liabilities:                            |                          |  |                 
|                                               
|Checks written in excess of cash                |                          |  | $               
|                                               
|Current maturities of long-term debt            |                          |  |                 
|                                               
|Accounts payable                                |                          |  |                 
|                                               
|Income taxes payable                            |                          |  |                 
|                                               
|Customers advance payments on contracts        |                          |  |                 
|                                               
|Other accrued liabilities                       |                          |  |                 
|                                                |                          |  |                 
|                                               
|Total current liabilities                       |                          |  |                 
|                                               
|Long term debt, less current maturities         |                          |  |                 
|                                               
|Other postretirement benefit obligations        |                          |  |                 
|                                               
|Note payable, net of current portion            |                          |  |                 
|                                               
|Deferred income taxes                           |                          |  |                 
|                                               
|Accrued pension liabilities                     |                          |  |                 
|                                                |                          |  |                 
|                                               
|Total liabilities                               |                          |  |                 
|                                               
|Commitments and contingencies (Notes 11 and 13)
|                                               
|Shareholders equity:                           |                          | 
|                                               
|Common shares, $1 par; 10,000,000 shares       
|authorized; 5,667,068 and 5,665,568 shares     
|issued; 5,151,314 and 5,149,814 outstanding     |                          |  |                 
|                                               
|Additional paid-in capital                      |                          |  |                 
|                                               
|Accumulated deficit                             |                          |  |                 
|                                               
|Accumulated other comprehensive loss            |                          |  |                 
|                                               
|Less:  515,754 common shares held              
|in treasury, at cost                            |                          |  |                 
|                                                |                          |  |                 
|                                               
|Total shareholders equity                      |                          |  |                 
|                                                |                          |  |                 
|                                               
|                                                |                          |  | $               
|                                                |                          |  |                 

(See accompanying notes to the consolidated condensed financial statements)

4

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Table of Contents

# INTRICON CORPORATION
Consolidated Condensed Statements of Operations
(Unaudited)

|                                             | Three Months Ended
|-------------------------------------------- | ------------------
|
|Sales, net                                   |                   
|                                            
|Cost of sales                                |                   
|                                             |                   
|Gross margin                                 |                   
|                                            
|Operating expenses:                          |                   
|                                            
|Selling expense                              |                   
|General and administrative expense           |                   
|Research and development expense             |                   
|                                             |                   
|                                            
|Total operating expenses                     |                   
|                                            
|Operating loss                               |                   
|                                            
|Interest expense                             |                   
|Interest income                              |                   
|Other income (expense), net                  |                   
|                                             |                   
|                                            
|Loss from continuing operations             
|before income taxes                          |                   
|                                            
|Income tax expense (benefit)                 |                   
|                                             |                   
|                                            
|Loss from continuing operations              |                   
|                                            
|Income from discontinued operations,         |                   
|net of income tax expense                    |                   
|                                             |                   
|                                            
|Net income (loss)                            |                   
|                                             |                   
|                                            
|Income (loss) per share (basic and diluted): |                   
|Continuing operations                        |                   
|Discontinued operations                      |                   
|                                             |                   
|Net income (loss)                            |                   
|                                             |                   
|                                            
|Average shares outstanding:                  |                   
|                                            
|Basic and Diluted                            |                   

(See accompanying notes to the consolidated condensed financial statements)

5

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# INTRICON CORPORATION
Consolidated Condensed Statements of Cash Flows
(Unaudited)

|                                                                                            | Three months Ended
|------------------------------------------------------------------------------------------- | ------------------
|
|Cash flows from operating activities:                                                       |                   
|Net income (loss)                                                                           |                   
|Adjustments to reconcile net income to net    cash provided (used) by operating activities:
|Loss from discontinued operations                                                           |                   
|Depreciation and amortization                                                               |                   
|Gain on disposition of property                                                             |                   
|Allowance for doubtful accounts                                                             |                   
|Provision for deferred income taxes                                                         |                   
|Changes in operating assets and liabilities:                                               
|Accounts receivable                                                                         |                   
|Inventories                                                                                 |                   
|Other assets                                                                                |                   
|Accounts payable                                                                            |                   
|Accrued expenses                                                                            |                   
|Customer advances                                                                           |                   
|Other liabilities                                                                           |                   
|                                                                                            |                   
|Net cash provided (used) by continuing operations                                           |                   
|Net cash provided by discontinued operations                                                |                   
|                                                                                            |                   
|Net cash provided by operating activities                                                   |                   
|                                                                                           
|Cash flows from investing activities:                                                       |                   
|Purchases of property, plant and equipment                                                  |                   
|Cash paid for acquisition of Amecon, Inc.                                                   |                   
|Proceeds from sales of property, plant and equipment                                        |                   
|                                                                                            |                   
|Net cash used by investing activities                                                       |                   
|                                                                                           
|Cash flows from financing activities:                                                       |                   
|Proceeds from short-term bank borrowings                                                    |                   
|Repayments of short-term bank borrowings                                                    |                   
|Proceeds from long-term borrowings                                                          |                   
|Repayments of long-term  borrowings                                                         |                   
|Change in checks written in excess of cash                                                  |                   
|                                                                                            |                   
|Net cash provided (used) by financing activities                                            |                   
|                                                                                           
|Effect of exchange rate changes on cash                                                     |                   
|                                                                                            |                   
|                                                                                           
|Net increase (decrease) in cash and cash equivalents                                        |                   
|Cash and cash equivalents, beginning of period                                              |                   
|                                                                                            |                   
|                                                                                           
|Cash and cash equivalents, end of period                                                    |                   
|                                                                                            |                   

(See accompanying notes to the consolidated condensed financial statements)

6

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# INTRICON CORPORATION

Notes to Consolidated Condensed Financial Statements (Unaudited)

|1. | General
|-- | -------

| | In the opinion of management, the accompanying consolidated
condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly
IntriCon Corporations consolidated financial position as of March 31, 2006 and December 31, 2005, and the consolidated
results of its operations for the three months ended March 31, 2006 and 2005. Results of operations for the interim periods are
not necessarily indicators of the results of the operations expected results for the full year.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | 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. On April 14, 2005,
the Securities and Exchange Commission issued a release announcing the adoption of a new rule delaying the required implementation
of SFAS No. 123R. Under this new rule, SFAS No. 123R is effective as of the beginning of the first annual reporting period that
begins after June 15, 2005.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under the modified prospective approach, SFAS 123R
applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased or
cancelled. Under the modified prospective approach, compensation cost recognized for the first quarter of fiscal 2006 includes
compensation cost for all share-based payments granted prior to, but not yet vested on, January 1, 2006, based on the grant-date
fair value estimated in accordance with the provisions of SFAS 123R, and compensation cost for all shared-based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior
periods were not restated to reflect the impact of adopting the new standard. As a result of adopting SFAS 123R on January 1,
2006, the net loss and net loss per share for the three months ended March 31, 2006, were $44,000 and $0.01 lower, respectively,
than if the Company had continued to account for stock-based compensation under APB Opinion No. 25.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company calculates expected volatility for stock
options and awards using both historical volatility as well as the average volatility of our peer competitors. The Company
currently estimates a zero percent forfeiture rate for stock options but will continue to review in future periods.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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

| | In 2003, the Company initiated its plan to sell the
remainder of its Heat Technology segment. This segment, which was sold on March 31, 2005, consisted of the operating assets of the
Company, located in Dresher, Pennsylvania, Nippon Selas located in Tokyo, Japan and Selas Waermetechnik located in Ratingen,
Germany. This business generated sales of $2.1 million and net income of $464,000 for the three months ended March 31, 2005. The
net income for the three months ended March 31, 2005, included a gain on the sale of the operations of $536,000. The total
purchase price was approximately $3.7 million, subject to adjustment, of which approximately $2.8 million was paid in cash on
April 1, 2005, and $900,000 was paid in the form of a subordinated promissory note. An adjustment to the purchase price of
approximately $352,000 was recorded in the quarter ended June 30, 2005.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Business Segment Information
|-- | ----------------------------

| | The Company made a strategic decision to focus its
future on the Precision Miniature Medical and Electronics products business. The Company sold the remaining operations of its Heat
Technology business of the Burners and Components business on March 31, 2005. As a result of this decision and other divestures
the Company has made over the past three years, the Company now operates in only one segment.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Inventories consisted of the following at:
|-- | ------------------------------------------

|                                 | March 31,2006 |  | December 31,2005
|-------------------------------- | ------------- |  | ----------------
|Raw material                     |               |  | $               
|Work-in-process                  |               |  |                 
|Finished products and components |               |  |                 
|                                 |               |  |                 
|                                
|                                 |               |  | $               
|                                 |               |  |                 

|6. | Short and Long Term Debt
|-- | ------------------------

| | Short and long term debt at March 31, 2006 and
December 31, 2005 are summarized as follows:
| | -------------------------------------------------------------------------------------------

|                                                | March 31,2006 |  | December 31,2005
|----------------------------------------------- | ------------- |  | ----------------
|Domestic Asset-Based Revolving Credit Facility  |               |  | $               
|Foreign Overdraft and Letter of Credit Facility |               |  |                 
|Domestic Term Loans (Real Estate Based in 2005) |               |  |                 
|Domestic Equipment Leases Term Loan             |               |  |                 
|                                                |               |  |                 
|                                                |               |  | $               
|Less: Current maturities                        |               |  |                 
|                                                |               |  |                 
|Total Long Term Debt                            |               |  | $               
|                                                |               |  |                 

8

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| | The Company has a series of loan facilities
available including a $5,500,000 domestic asset-based revolving credit facility supported by a borrowing base, to mature on August
31, 2008 with annual interest computed at the greater of 5.25%, or 0.5% over prime (8.25% as of March 31, 2006). The Company also
has a $1,500,000 domestic real estate term loan supported by the Companys Vadnais Heights, MN manufacturing facility,
amortized on a 12-year schedule, to mature on August 31, 2008 with annual interest computed at the greater of 5.25%, or 0.75% over
prime (8.5% as of March 31, 2006). The Company also has an unutilized $1,000,000 domestic equipment term loan which is
collateralized by the assets. The loan is amortized on a five-year schedule, to mature on August 31, 2008 with annual interest
computed at the greater of 5.25%, or 0.75% over prime. The domestic asset-based revolving facility carries a commitment fee of
0.25% per annum, payable on the unborrowed portion of the line. Additionally, the entire package of credit lines carries with it
an annual fee of $27,500 due on August 31, 2006, 2007, and 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The $8,000,000 domestic program ($5,500,000
revolver, $1,500,000 real estate, and $1,000,000 equipment line) also provides for one-, three- and six-month London Interbank
Offered Rate (LIBOR) interest rate options at the applicable LIBOR rate plus 3.25% for the revolver, or 3.50% for the term loans.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In addition to the Companys domestic
facilities, the Companys operation in Singapore maintains an overdraft and letter of credit facility. The facility is
secured and with annual interest computed at approximately 6.5 percent. As of March 31, 2006, the overdraft and letter of credit
facility has an outstanding balance of $516,033.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For the quarter ending March 31, 2006 we were in
default with our Net Income and Fixed Charge Ratio covenants per our senior secured credit agreement with Diversified Business
Credit, Inc. On April 18, 2006, we received a wavier letter for the two terms that were in default from Diversified Business
Credit, Inc. The waiver granted was effective only in this specific instance and only for the first quarter ending March 31, 2006.
This waiver shall not entitle us to any other or further waiver in any similar or other circumstances. We are currently in the
process of renegotiating our bank covenants as well as increasing our borrowing capacity.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The outstanding balance of the revolving credit
facilities was $3,616,566 and $3,753,597 at March 31, 2006 and December 31, 2005, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

| | The terms of the domestic loan agreements require
monthly interest payments on the revolving line with a balloon payment due at the end of the loan, and monthly interest and
principal payments on the real estate and equipment lines consistent with their respective 12-year and five-year amortization
periods.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Companys ability to pay the principal and
interest on its indebtedness as it comes due will depend upon its current and future performance. The Companys 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 funds expected to be
generated from operations, the available borrowing capacity through our revolving credit loan facilities, and the control of
capital spending will be sufficient to meet its anticipated cash requirements for operating needs through May 2007. If, however,
the Company does not generate sufficient cash from operations, or if it incurs additional unanticipated liabilities, the Company
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, 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. While management
believes that the Company will meet its liquidity needs through May 2007, no assurance can be given that the Company will be able
to do so.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

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| | During 2005, the Company entered into several
capital lease agreements to fund the acquisition of machinery and equipment. For 2005, the total principal amount of these leases
was $314,000 with effective interest rates ranging from 6.7 to 8.0 percent. These agreements range from 3 to 5 years. The
outstanding balance at March 31, 2006 and December 31, 2005 was $222,000 and $239,000, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Income Taxes
|-- | ------------

| | Income taxes expense (benefit) was $(38,000) and
$96,000 for the three months ended March 31, 2006 and 2005, respectively. On February 22, 2006 the Company received approval from
the Singapore Ministry of Trade and Industry to lower the effective tax rate in Singapore from 20% to 13%. This change was
retroactive to September of 2003. As such, a $106,000 benefit was recognized in the first quarter of 2006. The expense in 2005 was
primarily due to foreign taxes on German and Singapore operations. The Company is in a net operating loss position for Federal
income tax purposes and, consequently, no expense from the current period domestic operations was recognized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | Stockholders Equity and Stock-based
Compensation
|-- | -------------------------------------------------

| | The following table presents a reconciliation of the
denominators used in the computation of basic and diluted earnings per share related to the Companys employee stock option
plan:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                       | Three months endedMarch 31,
|------------------------------------------------------ | ---------------------------
|
|Basic  weighted shares outstanding                    |                            
|Weighted shares assumed upon exercise of stock options |                            
|                                                       |                            
|Diluted  weighted shares outstanding                  |                            
|                                                       |                            

| | The dilutive impact summarized above relates to the
periods when the average market price of Company stock exceeded the exercise price of the potentially dilutive option securities
granted.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On January 1, 2006 the Company adopted the 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. For the three months ended March 31, 2006, the
Company recognized $44,000 of non-cash stock option expense related to the adoption of SFAS No.123R.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | Income (Loss) Per Share
|-- | -----------------------

| | Excluded from the computation of diluted earnings
per share for the three months ended March 31, 2006 were options to purchase approximately 727,000 common shares, with an average
exercise price of $3.99, because the effect would have been anti-dilutive. Excluded from the computation of diluted earnings per
share for the three months ended March 31, 2005 were options to purchase approximately 661,000 common shares because the effect
would have been anti-dilutive.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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|10. |  | Comprehensive Income (Loss)
|--- |  | ---------------------------

| | The components of comprehensive income, as required to be reported
by SFAS No. 130, Reporting Comprehensive Income, were as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------

|                                                | Three months endedMarch 31,
|----------------------------------------------- | ---------------------------
|
|Net income (loss)                               |                            
|                                               
|Gain on foreign currency translation adjustment |                            
|                                                |                            
|                                               
|Comprehensive income (loss)                     |                            
|                                                |                            

| | Accumulated other comprehensive loss totaled $207,000 and $213,000
at March 31, 2006 and December 31, 2005, respectively.
| | -------------------------------------------------------------------------------------------------------------------------

|11. |  | Legal Proceedings
|--- |  | -----------------

| | The Company is a defendant along with a number of other parties in
approximately 122 lawsuits as of March 31, 2005 (approximately 122 lawsuits as of December 31, 2005) 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.  The lead insurance carrier has informed the Company that the
primary policy for the period July 1, 1972  July 1, 1975 has been exhausted and that the lead carrier will no longer provide
a defense under that policy.  The Company has requested that the lead carrier substantiate its position.  The Company
has contacted representatives of the Companys excess insurance carrier for some or all of this period.  The Company
does not believe that the asserted exhaustion of the primary insurance coverage for this period will have a material adverse
effect on the financial condition, liquidity, or results of operations of the Company.  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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As more fully described in Note 13, the Companys wholly
owned French subsidiary, Selas SAS filed insolvency in France and is being managed by a court appointed judiciary administrator.
The Company may be subject to additional litigation or liabilities as a result of the French insolvency.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company is also involved in other lawsuits arising in the
ordinary 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. |  | 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 base rent expense incurred under the lease was approximately $368,000 for 2005, $368,000 for 2004 and $336,000
for 2003. Annual lease commitments approximate $368,000 through October 2011.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

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|13. |  | Subsidiary Insolvency
|--- |  | ---------------------

| | On August 4, 2003 the Companys wholly owned French
subsidiary, Selas SAS, filed insolvency in the Commercial Court of Nanterre, France and is being managed through a court appointed
judiciary administrator. Historical financial information has been restated to include this European operation in discontinued
operations. In addition, the Company may be subject to additional litigation or liabilities as a result of the French insolvency.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. |  | Statements of Cash Flows
|--- |  | ------------------------

| | The following table provides supplemental disclosures of cash flow
information:
| | -------------------------------------------------------------------------------

|                                      | Three months Ended
|------------------------------------- | ------------------
|
|Interest received                     |                   
|Interest paid                         |                   
|Income taxes paid                     |                   
|Acquisition of assets of Amecon, Inc. |                   
|Goodwill                              |                   
|Property and equipment                |                   

| | The adjustment to the assets for Amecon, which were acquired on
October 2005, was due to the final adjustment to the working capital requirement as stated in the asset purchase agreement. The
Company believes no future material adjustment is likely.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

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|ITEM 2. |  | ManagementsDiscussion and Analysis of Financial Condition and Results of Operations
|------- |  | ------------------------------------------------------------------------------------

Business Overview

Headquartered in Arden Hills, Minnesota, IntriCon Corporation (formerly Selas
Corporation of America) 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 California, Singapore, and Germany. Within
discontinued operations, the Company had facilities in Pennsylvania, Japan and Germany. See also notes 3 and 4 to the Condensed
Consolidated Financial Statements.

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 on March 31, 2005. The Company
classified its heat technology segment as discontinued operations in 2004.

With the completed sale of the burner and components business, the Company
has successfully 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 changed its name to IntriCon
Corporation.

The Company manufactures micro-miniature components, systems and molded
plastic parts for hearing instruments, 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 47%
of net sales for the Companys precision miniature medical and electronic products business in the first three months of
fiscal 2006.

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, and bubble sensors and flow restrictors that
monitor and control the flow of fluid in an intravenous infusion system.

13

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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 micro-miniature 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 balance of sales represents various industrial, commercial and military sales for thermistor and thermistor
assemblies to domestic and international markets.

Forward-Looking and Cautionary Statements

Certain statements included in this Quarterly Report on Form 10-Q or
documents the Company files with the Securities and Exchange Commission, which are not historical facts, are forward-looking
statements (within the meaning of the Private Securities Litigation Reform Act of 1995), which are intended to be covered by the
safe harbors created thereby. These statements may include, but are not limited to:

| |  | statements in Managements Discussion and
Analysis of Financial Condition and Results of Operations such as, the impact of future cash flows, the ability to meet
working capital requirements, and litigation; and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | statements in Notes to the Companys
Condensed Consolidated Financial Statements.
|- |  | -----------------------------------------------------------------------------------

Forward-looking statements also include, without limitation, statements as to
the Companys:

| |  | expected future results of operations and growth;
|- |  | -------------------------------------------------
| 
| |  | ability to meet working capital requirements; and
| 
| |  | business strategy                                

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 Quarterly Report on Form 10-Q, 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:

| |  | the ability to implement the Companys business
and growth strategy;
|- |  | --------------------------------------------------------------------

| |  | risks arising in connection with the insolvency of
Selas SAS and potential liabilities and actions arising in connection therewith;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------

| |  | the volume and timing of orders received by the
Company;
|- |  | --------------------------------------------------------

| |  | changes in estimated future cash flows;
|- |  | ---------------------------------------

| |  | foreign currency movements in markets the Company
services;
|- |  | -----------------------------------------------------------

| |  | changes in the global economy and financial markets;
|- |  | ----------------------------------------------------

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| |  | changes in the mix of products sold;
|- |  | ------------------------------------

| |  | ability to meet increasing demand;
|- |  | ----------------------------------

| |  | changes in customer requirements;
|- |  | ---------------------------------

| |  | timing and extent of research and development
expenses;
|- |  | -------------------------------------------------------

| |  | acceptance of the Companys products;
|- |  | -------------------------------------

| |  | competitive pricing pressures;
|- |  | ------------------------------

| |  | pending and potential future litigation;
|- |  | ----------------------------------------

| |  | availability of electronic components for the
Companys products;
|- |  | -----------------------------------------------------------------

| |  | ability to create and market products in a timely
manner and develop products that are inexpensive to manufacture;
|- |  | ------------------------------------------------------------------------------------------------------------------

| |  | ability to pay debt when it comes due;
|- |  | --------------------------------------

| |  | the loss of one or more of our major customers;
|- |  | -----------------------------------------------

| |  | ability to identify and integrate acquisitions;
|- |  | -----------------------------------------------

| |  | effects of legislation;
|- |  | -----------------------

| |  | effects of foreign operations;
|- |  | ------------------------------

| |  | ability to recruit and retain engineering and
technical personnel;
|- |  | ------------------------------------------------------------------

| |  | loss of members of our senior management team;
|- |  | ----------------------------------------------

| |  | our ability and the ability of our customers to
protect intellectual property; and
|- |  | ----------------------------------------------------------------------------------

| |  | risks associated with terrorist attacks, war and
threats of attacks and wars.
|- |  | -----------------------------------------------------------------------------

For a description of these and other risks see Risk Factors in
Part 1, Item 1A: Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2005 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.

2006 compared with 2005

# Sales, net

Consolidated net sales for the three months ended March 31, were as follows
(in thousands):

|                            |  |  | Change
|--------------------------- |  |  | ------
|
|Three months ended March 31 |  |  | $     

Our net sales for the three months are comprised of four main sectors:
Hearing health, electronics, medical and professional audio device. Our net sales for the three months ended March 31, 2006
increased for three of the four product sectors over the same periods in the prior year.

The professional audio device product sector grew 24 percent in the three
months ended March 31, 2006 over same period prior year primarily due to sales of a new microphone to a specific customer. The
electronics product sector increased 47 percent in the three months ended March 31, 2006 over same period prior year. Exclusive of
the October 6, 2005 acquisition of Amecon Inc., sales increased 9 percent.

Despite minimal growth in the primary hearing health industry, net sales for
our hearing health sector grew 18 percent over the same period prior year. The increase was primarily due to new product offerings
in our advance line of amplifier assemblies and systems based on Digital Signal Processing (DSP).

We experienced a decrease of 1 percent in net sales to the medical equipment
market in the three months ended March 31, 2006 over same period prior year.

15

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Table of Contents

# Gross profit

Gross profit margins for the three months ended March 31, were as follows (in
thousands):

|                            | 2006 |  | 2005 |       | Change
|--------------------------- | ---- |  | ---- | ----- | ------
|
|Three months ended March 31 |      |  | $    | 2,766 |       

The gross profit margin as a percentage of sales, decreased slightly for the
three month period ended March 31, 2006 compared to the previous year period primarily due to new project inefficiencies.

# Selling, general and administrative expenses (SG&A)

Selling, general and administrative expenses (SG&A) for the three months
ended March 31 were as follows (in thousands):

|                           | 2006 |  | 2005 |       | Change
|-------------------------- | ---- |  | ---- | ----- | ------
|
|Selling                    |      |  | $    | 902   |       
|General and administrative |      |  |      | 1,305 |       
|Research and development   |      |  |      | 569   |       

The increased selling, general and administrative, and research and
development expense for three month period ended March 31, 2006 as compared to the prior year period was primarily driven by the
need to adequately support the our substantial growth and our October 6, 2005 acquisition of Amecon, Inc. Various investments were
made in selling, general and administrative, and research and development areas beginning in the second quarter of 2005.

# Operating loss

Operating losses for the three months ended March 31, 2006 and 2005 were
$10,000 and $81,000 respectively.

# Interest expense

Interest expense for the three months ended March 31, 2006 and 2005 was
$157,000 and $112,000 respectively. The increase from the prior years interest expense was due to the higher outstanding
debt balance and increasing interest rates. The higher outstanding was debt balance was primarily driven by the debt related to
the purchase of Amecon Inc.

# Interest income

Interest income for the three months ended March 31, 2006 and 2005 was
$21,000 and $0, respectively. The interest income was attributable to interest on the note receivable from the buyer of the
discontinued operations that were sold on March 31, 2005.

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# Other income (expense)

Other income (expense) for the three months ended March 31, 2006 and 2005 was
$(34,000) and $35,000, respectively. The other expense for the quarter ended March 2006, primarily related to loss on foreign
exchange.

# Income taxes

Income taxes expense (benefit) was $(38,000) and $96,000 for the three months
ended March 31, 2006 and 2005, respectively. On February 22, 2006 the Company received approval from the Singapore Ministry of
Trade and Industry to lower the effective tax rate in Singapore from 20% to 13%. This change was retroactive to September of 2003.
As such a $106,000 benefit was recognized in the first quarter of 2006. The expense in 2005 was primarily due to foreign taxes on
German and Singapore operations. The Company is in a net operating loss position for Federal income tax purposes and,
consequently, no expense from the current period domestic operations was recognized.

# Income loss from continuing operations

For the three months ended March 31, 2006 and 2005, the net loss from
continuing operations was $141,000 and $254,000, respectively.

# Discontinued Operations

Discontinued operations generated a net income of $464,000 for the three
months ended March 31, 2005. The income for the three months ended March 31, 2005 included a gain on the sale of the Burners and
Components business of $968,000. See note 3 of the Consolidated Condensed Financial Statements. There were no discontinued
operations for the three months ended March 31, 2006.

Liquidity and Capital Resources

The Companys cash flows from operating, investing and financing
activities, as reflected in the statement of cash flows, are summarized as follows (in thousands):

|                                                 | Three months Ended
|------------------------------------------------ | ------------------
|
|Cash provided (used) by:                         |                   
|Continuing operations                            |                   
|Discontinued operations*                         |                   
|Investing activities                             |                   
|Financing activities                             |                   
|Effect of exchange rate changes on cash          |                   
|                                                 |                   
|Increase (decrease) in cash and cash equivalents |                   
|                                                 |                   

*Includes proceeds from the sale of discontinued operations.

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The Company had the following bank arrangements (in thousands):

|                                                |  | March 31,2006 |   | December 31,2005
|----------------------------------------------- |  | ------------- | - | ----------------
|                                                |  |               |   |                 
|Total availability under existing facilities    |  |               | $ | 10,222          
|                                                |  |               |   |                 
|                                               
|Domestic Asset-Based Revolving Credit Facility  |  |               |   | 3,617           
|Foreign Overdraft and Letter of Credit Facility |  |               |   | 516             
|Domestic Term Loans (Real Estate Based in 2005) |  |               |   | 1,419           
|Domestic Equipment Lease Term Loan              |  |               |   | 222             
|                                                |  |               |   |                 
|Total Debt                                      |  |               |   | 5,774           
|                                               
|Total availability under existing facilities    |  |               | $ | 4,448           
|                                                |  |               |   |                 

On August 31, 2005, our wholly-owned subsidiaries Resistance Technology, Inc.
and RTI Electronics, Inc. (the Borrowers) entered into a senior secured credit agreement with Diversified Business
Credit, Inc. (the Agreement), and related Term Loan Supplement (Real Estate) and Term Loan Supplement (Equipment). In
connection with the Agreement, on August 31, 2005, we also entered into a security agreement and a guaranty by corporation with
Diversified Business Credit, Inc. whereby we guaranteed the full amount that the Borrowers may owe Diversified Business Credit,
Inc. Under these agreements, we and the Borrowers granted Diversified Business Credit, Inc. a security interest in substantially
all of their assets. In addition, Resistance Technology, Inc. granted a mortgage on its Vadnais Heights, Minnesota facility.

The Agreement has a term of three years. The Agreement provides for the
following:

| |  | $5.5 million asset-backed revolving credit facility
supported by a monthly borrowing base;
|- |  | ------------------------------------------------------------------------------------------

| |  | $1.5 million real estate term loan amortized on a
12-year schedule; and
|- |  | -----------------------------------------------------------------------

| |  | $1.0 million equipment term loan amortized on a
five-year schedule.
|- |  | -------------------------------------------------------------------

The domestic revolving credit facility bears interest at 0.5% over the prime
rate or, at the option of the Borrower, subject to certain exceptions, the London InterBank Offered Rate (LIBOR) plus
3.25%, provided that in no event will the rate be less than 5.25%. The domestic term loans bear interest at 0.75% over the prime
rate or, at the option of the Borrower, subject to certain exceptions, LIBOR plus 3.50%, (8.25% at March 31, 2006) provided that
in no event will the rate be less than 5.25%. Notwithstanding the foregoing, interest paid on advances for each twelve month
period may never be less than $100,000. Under the Agreement, an unused line fee at the rate of 0.25% per annum on the daily
average unused amount of the revolving credit facility is due and payable monthly in arrears on the first day of the month. In
addition, the Borrowers must pay an annual fee equal to the greater of $27,500 or one-half percent of the maximum amount permitted
to be borrowed under the revolving credit facility. In addition, if the facility is terminated by the Borrowers prior to the end
of the term, the Borrowers will also be required to pay a termination fee equal to 3% (if terminated before the first anniversary
of the facility), 2% (if terminated before the second anniversary of the facility) and 1% (if terminated before the third
anniversary of the facility), respectively, of the total of the maximum amount available under the revolving credit facility plus
the amounts then outstanding under the terms loans.

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The domestic revolving credit facility requires monthly interest payments
with a balloon payment at maturity. The real estate term loan requires monthly principal payments of $10,285, with any balance due
on August 31, 2008. The equipment term loan requires monthly principal payments based on a assumed amortization period of 60
months, with any balance due on August 31, 2008.

The outstanding balance on the real-estate term loan was approximately
$1,419,000 and $1,450,000 at March 31, 2006 and December 31, 2005, respectively.

Under the Agreement, without the prior written consent from Diversified
Business Credit, Inc., we and the Borrowers are restricted or limited, except as otherwise permitted in the Agreement, from, among
other things: becoming or remaining liable in any manner with respect of indebtedness or contractual liability; declaring or
paying any cash dividends (except that Borrowers may declare and pay dividends to the Company as described in the Agreement),
purchasing or redeeming any of our capital stock or otherwise distributing any property on its capital stock; creating, expending
or contracting to expend, in any one calendar year, with respect to the Borrowers collectively, more than $2.0 million in the
aggregate, or more than $250,000 in any one transaction, for the lease, purchase or other acquisition of any capital asset, or for
the lease of any other asset whether payable currently or in the future; selling, leasing or otherwise disposing of any collateral
(as defined in the agreement) or all or any substantial part of its property; consolidating or merging with any other corporation
or acquiring stock of any corporation or entering into any other partnership or joint venture; substantially alter the nature of
the business in which it is engaged; permitting any breach, default or event of default to occur under any note, loan, agreement
or other contractual obligation binding the Borrowers; or amending governing documents.

In the case of an event of default (as defined in the Agreement), unless
waived by Diversified Business Credit, Inc., Diversified Business Credit, Inc., by notice, may terminate the Agreement and declare
the Borrowers obligations under the Agreement due and payable. Diversified Business Credit, Inc. may also in accordance with
the Agreement and the law, exercise and enforce any and all rights and remedies available upon default to a secured party under
the Uniform Commercial Code, including, without limitation, the right to take possession of the collateral (as defined in the
Agreement). Upon the occurrence of any default, Diversified Business Credit, Inc. can suspend the making of advances until the
default has been cured or waived. All obligations will be immediately and automatically due and payable, without further act or
condition, if any cause under the United States Bankruptcy Code is commenced voluntarily by any Borrower, guarantor (as defined in
the Agreement and includes the Company) or involuntary against any Borrower or guarantor. Events of default include, among other
things, the failure to maintain certain financial covenants or insurance coverage, the failure to make payment of any obligation
due under the Agreement or the occurrence of a default under any bond, debenture, note or other evidence of material indebtedness
of any Borrower or guarantor owed to any person or entity other than Diversified Business Credit, Inc., or under any indenture or
other instrument under which any such evidence of indebtedness has been issued or by which it is governed, or under any material
lease or other contract, and the expiration of the applicable period of grace, if any, specified in such evidence of indebtedness,
indenture, other instrument, lease or contract.

On August 15, 2005, our wholly-owned subsidiary, RTI Tech, PTE LTD., entered
into an international senior secured credit agreement with Oversea-Chinese Banking Corporation Ltd. that provides for a $2.0
million line of credit. Borrowings bear interest at a rate of 6.47%. This facility will be reviewed annually to determine whether
it will be renewed. The outstanding balance was $516,000 and $765,000 at March 31, 2006 and 2005, respectively.

19

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For the quarter ending March 31, 2006 we were in default with our Net Income
and Fixed Charge Ratio covenants per our senior secured credit agreement with Diversified Business Credit, Inc. On April 18, 2006,
we received a wavier letter for the two terms that were in default from Diversified Business Credit, Inc. The waiver granted was
effective only in this specific instance and only for the first quarter ending March 31, 2006. This waiver shall not entitle us to
any other or further waiver in any similar or other circumstances. We are currently in the process of renegotiating our bank
covenants as well as increasing our borrowing capacity. Our ability to pay the principal and interest on our indebtedness as it
comes due will depend upon our current and future performance. Our performance is affected by general economic conditions and by
financial, competitive, political, business and other factors. Many of these factors are beyond our control.

We believe that funds expected to be generated from operations, the available
borrowing capacity through our revolving credit loan facilities, and the control of capital spending will be sufficient to meet
our anticipated cash requirements for operating needs through May 2007. If, however, we do not generate sufficient cash from
operations, or if we incur additional unanticipated liabilities, we may be required to seek additional financing or sell equity on
terms which may not be as favorable as we 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 we will be able to negotiate acceptable terms. In
addition, our access to capital is affected by prevailing conditions in the financial and equity capital markets, as well as our
own financial condition. While management believes that we will meet our liquidity needs through May 2007, no assurance can be
given that we will be able to do so.

Recent 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. On April 14, 2005, the Securities and Exchange
Commission issued a release announcing the adoption of a new rule delaying the required implementation of SFAS No. 123R. Under
this new rule, SFAS No. 123R is effective as of the beginning of the first annual reporting period that begins after June 15,
2005. For the first quarter ending March 31, 2006 the non-cash stock option expense related to the adoption of SFAS No. 123R was
$44,261.

Under the modified prospective approach, SFAS 123R applies to new awards and
to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased or cancelled. Under the modified
prospective approach, compensation cost recognized for the first quarter of fiscal 2006 includes compensation cost for all
share-based payments granted prior to, but not yet vested on, January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123R, and compensation cost for all shared-based payments granted subsequent to January 1,
2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior periods were not restated
to reflect the impact of adopting the new standard. As a result of adopting SFAS 123R on January 1, 2006, the net loss and net
loss per share for the three months ended March 31, 2006, were $44,000 and $0.01 lower, respectively, than if the Company had
continued to account for stock-based compensation under APB Opinion No. 25.

20

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The Company calculates expected volatility for stock options and awards using
both historical volatility as well as the average volatility of our peer competitors. The Company currently estimates a zero
percent forfeiture rate for stock options but will continue to review in future periods.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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 their significance to the consolidated condensed financial statements and the possibility that future events affecting
them may differ markedly. The accounting policies of the Company with significant estimates and assumptions include the
Companys revenue recognition, accounts receivable reserves, inventory reserves, discontinued operations, goodwill,
long-lived assets and deferred taxes policies. These and other significant accounting policies, except for revenue recognition
which is described in the paragraphs below, are described in and incorporated by reference from Managements Discussion
and Analysis of Financial Condition and Results of Operations, and Note 1 to the financial statements contained in or
incorporated by reference in the Companys Annual Report on Form 10-K for the year ended December 31, 2005.

The Companys continuing operations 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. Under contractual terms shipments are generally
FOB shipment point.

Customers have 30 days to notify the Company if the product is damaged or
defective. Beyond that, there are no significant obligations that remain after shipping other than warranty obligations. Contracts
with customers do not include product return rights, however, the Company may elect in certain circumstances to accept returns for
product. The Company records revenue for product sales net of returns. Net sales also include amounts billed to customers for
shipping and handling, if applicable. The corresponding shipping and handling costs are included in the cost of sales.

In general, the Company warrants its products to be free from defects in
material and workmanship and will fully conform to and perform to specifications for a period of one year. While the
Companys warranty costs have historically been within its expectations, the Company cannot guarantee that it will continue
to experience the same warranty return rates or repair costs that it has experienced in the past.

21

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|ITEM 3. |  | Quantitativeand Qualitative Disclosures About Market Risk
|------- |  | ---------------------------------------------------------

For information regarding the Companys exposure to certain market
risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Companys Annual Report on Form 10-K
for the year ended December 31, 2005. There have been no material changes in the Companys portfolio of financial instruments
or market risk exposures which have occurred since December 31, 2005.

|ITEM 4. |  | Controlsand Procedures
|------- |  | ----------------------

The Companys management, with the participation of its chief executive
officer and chief financial officer, conducted an evaluation of the effectiveness of the Companys disclosure controls and
procedures, as defined in Exchange Act Rule 13a-15(e), as of March 31, 2006 (the Disclosure Controls Evaluation).
Based on the Disclosure Controls Evaluation, the Companys chief executive officer and chief financial officer concluded that
the Companys disclosure controls and procedures were effective to provide a reasonable level of assurance that information
required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed,
summarized and reported within the specific time periods in the Securities and Exchange Commissions rules and forms.
Officers of the company have concluded that the disclosure controls and procedures are also effective to ensure that information
required to be disclosed in the reports the Company files or submits under Exchange Act are accumulated and communicated to
management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required
disclosure, all in accordance with Exchange Act Rule 13a-15(e).

The Companys management, with the participation of the Companys
chief executive officer and chief financial officer, also conducted an evaluation of the Companys internal control over
financial reporting, as defined in Exchange Act Rule 13a-15(f), to determine whether any changes occurred during the quarter ended
March 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting. Based on that evaluation, there was no such change during the quarter ended March 31, 2006.

A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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# PART II  OTHER INFORMATION

|ITEM 1. |  | Legal Proceedings
|------- |  | -----------------

The information contained in Notes 11 and 13 to the Consolidated Condensed
Financial Statements in part 1 of this quarterly report is incorporated by reference herein.

|ITEM 1A. |  | Risk Factors
|-------- |  | ------------

In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risk factors
in our Annual Report on Form 10  K have not materially changed. The risks described in our Annual Report on Form 10-K are
not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to
be immaterial also may materially adversely affect our business, financial condition and/or operating results.

|ITEM 2. |  | UnregisteredSales of Equity Securities and Use of Proceeds
|------- |  | ----------------------------------------------------------

None.

|ITEM 3. |  | Defaultsupon Senior Securities
|------- |  | ------------------------------

None.

|ITEM 4. |  | Submissionof Matters to a Vote of Security Holders
|------- |  | --------------------------------------------------

At the 2006 Annual Meeting of Shareholders of the Company held on April 22,
2006:

Mr. Nicholas A. Giordano was re-elected as director of the Board of
Directors of the Company for terms expiring at the 2006 Annual Meeting. In the election, 4,188,251 votes were cast for
Mr. Giordano. Under Pennsylvania law, votes cannot be cast against a candidate. Proxies filed at the 2006 Annual Meeting by
the holders of 526,458 shares withheld authority to vote for Mr. Giordano. The terms of the following directors continued
after the Annual Meeting: Michael J. McKenna, Robert N. Masucci, and Mark S. Gorder.

The 2006 Equity Incentive Plan was also approved. In the election, 1,997,390
votes were cast in favor of approval, while 774,333 were cast opposing approval, and holders of 7,823 shares withheld authority to
vote.

|ITEM 5. |  | Other Information
|------- |  | -----------------

None.

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Table of Contents

|ITEM 6. |  | Exhibitsand Reports on Form 8-K
|------- |  | -------------------------------

| | (a)    Exhibits
| | ---------------

| | 10.1(1) |  | 2006 Equity Incentive Plan
| | ------- |  | --------------------------

| | 10.2 |  | Form of stock option agreement for options granted pursuant to the
2006 Equity Incentive Plan
| | ---- |  | ---------------------------------------------------------------------------------------------

| | 31.1 |  | Certification of principal executive officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
| | ---- |  | ------------------------------------------------------------------------------------------------------

| | 31.2 |  | Certification of principal financial officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
| | ---- |  | ------------------------------------------------------------------------------------------------------

| | 32.1 |  | Certification of principal executive officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 |  | Certification of principal financial officer to U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | (1) |  | Incorporated by reference from the Companys Proxy Statement
filed with the SEC on March 17, 2006.
| | --- |  | --------------------------------------------------------------------------------------------------

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INTRICON CORPORATION

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|      | INTRICON CORPORATION(Registrant)                                  
|----- | ------------------------------------------------------------------
|     
|     
|Date: | May 12, 2006                                                      
|      | Mark S. Gorder                                                    
|      | President and Chief Executive Officer(principal executive officer)

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Table of Contents

EXHIBIT INDEX

| | 10.2 |  | Form of stock option agreement for options granted pursuant to the
2006 Equity Incentive Plan
| | ---- |  | ---------------------------------------------------------------------------------------------

| | 31.1 |  | Certification of principal executive officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
| | ---- |  | ------------------------------------------------------------------------------------------------------

| | 31.2 |  | Certification of principal financial officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
| | ---- |  | ------------------------------------------------------------------------------------------------------

| | 32.1 |  | Certification of principal executive officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 |  | Certification of principal financial officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

26

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