~~Table~~UNITED ~~of Contents~~STATES

~~UNITED STATES~~ SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

~~þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Year Ended December 31, 2007~~[X]

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for

~~o Transition Report Pursuant to Section 13 or 15(d) of~~ the ~~Securities~~Year ~~Exchange~~Ended ~~Act~~December 31, ~~of 1934~~2008

~~Commission File Number: 0-3252~~or

~~LEXINGTON PRECISION CORPORATION~~ [ ]

~~(Exact~~Transition ~~name~~Report Pursuant to Section 13 or 15(d) of ~~registrant~~the asSecurities ~~specified~~Exchange inAct ~~its~~of ~~charter)~~1934

~~Delaware~~Commission ~~(State~~File orNumber: ~~other jurisdiction of incorporation or organization) 22~~0-~~1830121 (I.R.S. Employer Identification No.)~~3252

~~800~~LEXINGTON ~~Third~~PRECISION ~~Avenue, New York, NY (Address of principal executive offices) 10022 (Zip code)~~CORPORATION

~~Registrant’s~~(Exact ~~telephone~~name ~~number,~~of ~~including~~registrant ~~area~~as ~~code:~~specified ~~(212~~in its charter) ~~319-4657~~

~~Securities registered pursuant to Section 12(b) of the Act: None~~Delaware

~~Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.25 par value (Title of Class)~~22-1830121

~~Indicate~~(State byor ~~check~~other ~~mark~~jurisdiction ~~if the registrant is a well-known seasoned issuer, as defined in rule 405~~ of ~~the Securities Act. Yes o No þ~~

~~Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15~~(~~d) of the Act~~I. ~~Yes o No þ~~ R.S. Employer

~~Indicate~~incorporation ~~by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13~~ or ~~15(d~~organization) 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. Yes þ No o

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

~~Indicate~~800 byThird ~~check mark whether the registrant is a large accelerated filer~~Avenue, anNew ~~accelerated filer~~York, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): NY

~~Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o (Do not check if a smaller reporting company)~~10022

~~Indicate by check mark whether the registrant is a shell company~~ (asAddress ~~defined in Rule 12b-2~~ of ~~the Exchange~~principal ~~Act~~executive offices)~~. Yes o No þ~~

~~The~~(Zip ~~aggregate market value of the registrant’s common stock, $0.25 par value per share, held by non-affiliates of the registrant, as of June 30, 2007, was approximately $822,000.~~ code)

~~The~~Registrant’s telephone number, ofincluding ~~shares~~area ofcode: ~~common~~(212) ~~stock outstanding as of March 20, 2008, was 5,021,767.~~ 319-4657

~~DOCUMENTS~~_________________ ~~INCORPORATED BY REFERENCE~~

~~Portions~~Securities ofregistered ~~the~~pursuant ~~registrant’s proxy statement~~ to beSection ~~issued in connection with its 2008 Annual Meeting of Stockholders~~ 12(~~the “Proxy Statement”~~b) ~~are incorporated by reference into Part III. Only those portions~~ of the ~~Proxy~~Act: ~~Statement which are specifically incorporated by reference are deemed filed as part of this report on Form 10-K.~~ None

~~LEXINGTON~~Securities ~~PRECISION~~registered ~~CORPORATION Annual~~pursuant ~~Report~~to onSection ~~Form 10-K Table~~12(g) of ~~Contents~~ the Act:

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		6
Item 2.	Properties		10
Item 3.	Legal Proceedings		11
Item 4.	Submission of Matters to a Vote of Security Holders		11
PART II
Item 5.	Market for Our Common Stock and Other Stockholder Matters		12
Item 6.	Selected Financial Data		15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		38
Item 8.	Financial Statements and Supplementary Data		40
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		72
Item 9A(T).	Controls and Procedures		72
Item 9B.	Other Information		74
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance of the Registrant		75
Item 11.	Executive Compensation		75
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		75
Item 13.	Certain Relationships and Related Transactions, and Director Independence		75
Item 14.	Principal Accountant Fees and Services		75
PART IV
Item 15.	Exhibits and Financial Statement Schedules		76
EX-10.6
EX-10.39
EX-21.1
EX-31.1
EX-31.2
EX-31.3
EX-32.1
EX-32.2
EX-32.3

Common Stock, $0.25 par value

~~Table~~(Title of ~~Contents~~Class)

~~PART~~Indicate I by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes __ No X

~~Item 1~~Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ~~BUSINESS~~ Yes __ No X

~~Our~~Indicate ~~company~~by ~~was~~check ~~incorporated~~mark inwhether ~~Delaware~~the inregistrant: ~~1966.~~(1) ~~Substantially~~has filed all reports required to be filed by Section 13 or 15(d) of ~~our~~the ~~business~~Securities ~~is conducted~~Exchange inAct of 1934 during the ~~continental~~preceding ~~United~~12 ~~States.~~months ~~Through~~(or ~~our~~for ~~two~~such ~~operating~~shorter ~~segments,~~period that the ~~Rubber~~registrant ~~Group and~~was ~~the~~required ~~Metals~~to ~~Group~~file such reports), weand ~~manufacture~~(2) ~~rubber~~has ~~and~~been ~~metal~~subject ~~components~~to ~~that~~such ~~are~~filing ~~sold~~requirements tofor ~~other manufacturers~~the past 90 days.

InYes ~~2007,~~X ~~net~~No sales of the Rubber Group totaled $74,587,000, or 84.4% of our consolidated net sales. The Rubber Group manufactures tight-tolerance rubber components. The Rubber Group’s principal products are connector seals used in automotive wiring systems, insulators used in both original-equipment and aftermarket automotive ignition-wire sets, and molded rubber components used in a variety of medical devices, such as intravenous feeding systems, syringes, and surgical equipment. We believe that we are the leading manufacturer of automotive connector seals and insulators for ignition-wire sets in North America. __

InIndicate ~~2007,~~by ~~net~~check ~~sales~~mark if disclosure of ~~the~~delinquent ~~Metals~~filers ~~Group~~pursuant ~~totaled~~to ~~$13~~Item 405 of Regulation S-K is not contained herein,~~821~~ and will not be contained,~~000,~~ orto ~~15.6%~~the best of ~~our~~the ~~consolidated~~registrant’s ~~net sales.~~knowledge, ~~The~~in ~~Metals~~definitive ~~Group~~proxy ~~manufactures~~or ~~machined~~information ~~metal~~statements ~~components~~incorporated ~~from~~by ~~aluminum,~~reference ~~brass,~~in ~~steel,~~Part ~~and stainless~~III ~~steel~~of ~~bars,~~this ~~forgings,~~Form ~~and cold~~10-~~headed~~K ~~blanks~~or any amendment to this Form 10-K. [X]

~~The~~Indicate ~~following~~by ~~table~~check ~~summarizes~~mark ~~net~~whether ~~sales~~the ofregistrant ~~the~~is ~~Rubber~~a ~~Group~~large ~~and~~accelerated ~~the~~filer, ~~Metals~~an ~~Group~~accelerated ~~during~~filer, ~~2007~~a non-accelerated filer, ~~2006,~~ ~~and~~or ~~2005~~a bysmaller ~~the~~reporting ~~type~~company. See definition of “accelerated ~~product~~filer inand ~~which~~large ~~each~~accelerated ~~segment’s~~filer” ~~components~~in ~~were~~Rule ~~utilized~~12b-2 ~~(dollar amounts~~of inthe ~~thousands~~Exchange Act. (Check one):

	Years Ended December 31
	2007				2006				2005
Rubber Group:
Automotive original equipment	$	35,799	48.0	%	$	41,246	54.2	%	$	49,793	58.6	%
Automotive aftermarket		22,034	29.5			22,728	29.9			23,928	28.2
Total automotive		57,833	77.5			63,974	84.1			73,721	86.8
Medical devices		15,928	21.4			11,039	14.5			9,989	11.8
Other		826	1.1			1,077	1.4			1,174	1.4
	$	74,587	100.0	%	$	76,090	100.0	%	$	84,884	100.0	%
Metals Group:
Automotive original equipment	$	11,597	83.9	%	$	9,490	80.3	%	$	9,856	82.4	%
Industrial and commercial equipment		1,549	11.2			1,623	13.8			1,429	12.0
Other		675	4.9			698	5.9			673	5.6
	$	13,821	100.0	%	$	11,811	100.0	%	$	11,958	100.0	%

Large Accelerated Filer __

~~Financial data for our operating segments can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part~~ ~~II,~~Accelerated ~~Item 7,~~Filer ~~under the section titled “Results of Operations — Comparison of 2007, 2006, and 2005,” and in Note 8, “Segments,” in the notes to our consolidated financial statements in Part II, Item 8.~~ __

Non-1- Accelerated Filer __

~~Table~~Smaller ofReporting ~~Contents~~Company X

~~Filing~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of ~~Chapter~~the Exchange Act).Yes __ No X 11

~~During~~The ~~the~~aggregate ~~second~~market ~~half~~value of ~~2006,~~the weregistrant’s ~~experienced~~common astock, ~~significant decrease in sales of automotive components~~$0.25 Wepar ~~believe~~value ~~that~~per ~~this~~share, ~~reduction~~held ~~was primarily a result of production cutbacks~~ by ~~the Detroit~~non-~~based~~affiliates automakers and resultant production cutbacks and inventory adjustments by our customers, who are primarily tier-one suppliers to automobile manufacturers. Although we reduced expenses in an effort to offset the impact of the ~~lower sales~~registrant, ~~our~~as ~~operating profit and cash flow during the second half~~ of ~~2006~~June ~~were~~30, ~~adversely affected~~2008, as was ~~the~~approximately ~~availability under our revolving line of credit~~$1,105,000.

WeThe ~~have~~number ~~not made any~~ of ~~the~~shares scheduled interest payments due on our Senior Subordinated Notes since November 1, 2006. From May 25, 2007, through January 24, 2008, we operated under a forbearance agreement with six hedge funds that hold $25,428,000 aggregate principal amount, or 74.4%, of ~~the~~common ~~Senior~~stock ~~Subordinated Notes~~ outstanding. ~~While~~as ~~the~~of ~~forbearance~~April ~~agreement was in effect~~13, we ~~were not required to make interest payments on the Senior Subordinated Notes~~2009, ~~and~~was ~~the forbearing noteholders could not take any action to collect any past due interest payments. An additional $7~~5,~~772~~021,~~000 aggregate principal amount, or 22~~767.~~7% of the Senior Subordinated Notes outstanding, is held by certain of our affiliates and members of their families.~~

~~The~~DOCUMENTS ~~failure~~INCORPORATED toBY make the scheduled interest payments on the Senior Subordinated Notes caused a cross-default under the agreements governing our secured debt. From May 25, 2007, through January 24, 2008, we operated under a forbearance arrangement with the secured lenders. We have remained current on all principal and interest payments owed to the secured lenders. REFERENCE

~~Upon~~Portions ~~the commencement~~ of the ~~forbearance~~registrant’s ~~period,~~proxy westatement ~~engaged the Detroit-based investment banking firm of W.Y. Campbell & Company~~ to ~~assist~~be issued in ~~the~~connection ~~review~~with ofits ~~the~~2009 ~~various~~Annual ~~strategic alternatives~~Meeting ~~available to us to satisfy our outstanding indebtedness. As a consequence~~ of ~~this review,~~Stockholders ~~we determined to pursue a sale of~~ (the ~~assets~~“Proxy ~~and~~Statement”) ~~business~~are ofincorporated ~~the~~by ~~Rubber~~reference ~~Group~~into ~~and,~~Part ~~with the assistance of W~~III.Y. ~~Campbell,~~Only ~~prepared~~those anportions ~~offering~~of ~~memorandum with respect to~~ the ~~proposed~~Proxy ~~sale. During~~Statement ~~the~~which ~~summer~~are ~~and~~specifically ~~fall~~incorporated ofby ~~2007,~~reference weare ~~distributed~~deemed ~~the~~filed ~~offering~~as ~~memorandum~~part ~~to a number~~ of ~~interested~~ ~~parties,~~this ~~including~~report ~~both~~on ~~financial~~Form ~~and strategic purchasers~~10-K.

~~During~~LEXINGTON ~~the~~PRECISION fourth quarter of 2007, we received several offers to purchase all or portions of the assets of the Rubber Group. Based upon these offers and the advice of W.Y. Campbell, we concluded that (1) the value of the Rubber Group alone is significantly in excess of our total indebtedness and (2) the proposal that would provide the maximum value for all of our constituencies was an offer from a major, multi-national, industrial company to purchase our facility in Rock Hill, South Carolina, which specializes in manufacturing molded rubber components for use in medical devices. The proposed purchase price of $32,000,000 would have resulted in an after-tax gain of approximately $26,000,000. CORPORATION

~~During~~Annual ~~January 2008,~~Report weon ~~approached~~Form ~~the six hedge funds that control our Senior Subordinated Notes to advise them of the following:~~ 10-K

1.Table We had decided to pursue the proposal to purchase the Rock Hill facility; 2. We had received a proposal from a new secured lender to provide us with a $36,700,000 senior, secured credit facility upon completion of the sale of the Rock Hill facility; 3. We believed that the proceeds of the sale and the new credit facility would permit us to pay all accrued interest on the Senior Subordinated Notes plus 50% of the principal amount of the Senior Subordinated Notes held by non-affiliates;Contents

~~-2-~~ Page

~~Table~~PART ~~of Contents~~I

	4.		In order to facilitate the refinancing, the balance of the Senior Subordinated Notes held by non-affiliates would have to be extended to mature on August 31, 2013, and would receive cash interest at 12% per annum; and
	5.		We agreed that the 22.7% of the Senior Subordinated Notes held by affiliates would be converted into shares of our common stock. At the same time, we requested an extension of the forbearance agreement to May 31, 2008, in order to provide the prospective purchaser and the new secured lender the time they required to complete their due diligence and documentation.

Item 1.

In late January 2008, the six hedge funds responded with an alternative proposal for an extension of the forbearance arrangement. After reviewing this proposal with our counsel and W.Y. Campbell, we concluded that it would not be in the best interest of all of our creditors and equity holders to proceed with an extension on the terms proposed; further discussions on this matter were unproductive and, as a result, the forbearance agreement expired on January 24, 2008. Subsequent to the expiration, we continued our discussions with the six hedge funds and proposed a number of transactions for the restructuring of our debt, but each of these proposals was rejected. Ultimately, we determined that the best available method to effect a restructuring of our debt on terms that would be fair to all of our creditors and stockholders was to utilize the provisions of chapter 11 of the United States Bankruptcy Code. Business

~~On April~~ 1, 2008, we filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. In connection with this petition, we obtained a financing package that we believe provides us more that adequate liquidity to operate our business without interruption throughout the term of the chapter 11 proceedings. This financing package consists of (1) an arrangement with our senior, secured lenders to freeze the loans under their revolving line of credit at the amount outstanding on April 1, 2008, and to permit us to use the collections on our accounts receivable in the operation of our business through February 25, 2009, and (2) a $4,000,000 debtor-in-possession (“DIP”) loan that matures on April 1, 2009. The arrangement with the senior, secured lenders provides for a continuation of our monthly, term loan principal payments, which aggregate $269,000 per month, and the elimination of the default interest premium, so that our interest rates return to the original contractual rates. The DIP loan is unsecured, subordinated to the senior, secured loans, and bears interest at LIBOR plus 7%, subject to a minimum interest rate of 10%. At April 30, 2008, the DIP loan had been fully funded and we had approximately $8,000,000 of cash on hand.

~~Upon~~Item the commencement of the chapter 11 proceedings, the interest rate on our Senior Subordinated Notes, which had been increased to 16% under the forbearance arrangement, was reduced to the contractual rate of 12%1A.

WeRisk do not believe that we will need to utilize the provisions of the Bankruptcy Code to effect any significant operational restructuring or to eliminate or renegotiate any unprofitable executory contracts that are material to our business. Our operations are healthy and profitable and, although there can be no assurance, we expect that to continue throughout the term of chapter 11 proceedings. We have experienced no disruptions in our operations to date and, based upon discussions with a significant number of major suppliers and customers, we do not expect any such disruption during the term of the chapter 11 proceedings. Factors

~~-3-~~ Item 2.

~~Table of Contents~~Properties

later that June 30, 2008, and hope to confirm that plan by September 30, 2008. We expect that our plan of reorganization will result in a significant reduction in our aggregate indebtedness by means of a conversion of a significant portion of our subordinated debt to equity at a valuation that is reflective of the offers that were received during the sale process. We also intend to retain all of our operations, including the medical business. 13

~~Major~~Item ~~Customers~~ 3.

~~Our~~Legal largest customer is General Cable Corporation. During 2007, 2006, and 2005, net sales to General Cable totaled $9,436,000, $9,557,000, and $10,971,000, which represented 10.7%, 10.9%, and 11.3%, respectively, of our consolidated net sales and 12.7%, 12.6%, and 12.9%, respectively, of the Rubber Group’s net sales. During 2007, 2006, and 2005, net sales to Delphi Corporation totaled $8,505,000, $10,719,000, and $17,426,000, which represented 9.6%, 12.2%, and 18%, respectively, of our consolidated net sales. During 2007, 2006, and 2005, the Rubber Group’s net sales to Delphi Corporation totaled $7,381,000, $10,719,000, and $17,426,000, which represented 9.9%, 14.1%, and 20.5%, respectively, of the Rubber Group’s net sales. During 2007, the majority of the products we sold to Delphi were covered by supply contracts that expire on December 31, 2008 and 2009. In October 2005, Delphi filed for protection from its creditors under chapter 11 of the United States Bankruptcy Code. Our unpaid, prepetition accounts receivable from Delphi total approximately $360,000. In connection with its proposed chapter 11 plan, Delphi has proposed to assume our supply contracts and to pay substantially all of our prepetition accounts receivable in order to cure its defaults under those contracts. No other customer accounted for more than 10% of our consolidated net sales during 2007, 2006, or 2005. Loss of a significant amount of business from General Cable, Delphi, or any of our other large customers could have a material adverse effect on our results of operations and financial condition if that business were not replaced by additional business from existing or new customers. We believe that our reserve for uncollectible accounts receivable is adequate; however, our results of operations and financial condition could be materially adversely affected if any of our large customers experienced financial difficulties that caused them to delay or fail to make payments for goods sold to them. Proceedings

~~Marketing and Sales~~ 13

~~Our~~Item ~~marketing and sales effort is carried out by management personnel and account managers~~4.

~~Raw~~Submission ~~Materials~~ of Matters to a Vote of Security Holders

Our principal raw materials are silicone and organic rubber compounds and aluminum, brass, steel, and stainless steel bars, forgings, and cold-headed blanks. We generally have had access to adequate amounts of each of our principal raw materials from a number of suppliers. During 2007 and 2006, price increases for our principal raw materials were generally not significant. During 2005, we experienced increased prices for most of our principal raw materials. 14

WePART have generally been successful in passing through to our customers increases in the prices of raw materials, although price increases to our customers have typically lagged behind the price increases from our suppliers. We attempt to minimize the effect of raw material price increases by seeking other sources of supply, substituting alternative materials, and reformulating compounds. II

WeItem ~~have not experienced any disruption in our production as a result of raw material shortages~~5.

~~-4-~~ Market for Our Common Stock and Other Stockholder Matters

~~Table of Contents~~15

~~Patents~~Item ~~and Trademarks~~ 6.

WeSelected doFinancial ~~not currently hold any patents, trademarks, or licenses that we consider to be material to the successful operation of our business.~~ Data

~~Seasonal Variations~~ 16

~~Our~~Item business generally is not subject to significant seasonal variation; however, we generally experience decreased sales during the third calendar quarter of each year due to shutdowns of our customers’ plants in July as a result of vacations and model-year changeovers and during the fourth calendar quarter of each year due to shutdowns of our customers’ plants for vacations and holidays in December7.

~~Backlog~~ Management’s Discussion and Analysis of Financial Condition and

~~Sales~~Results of our products are made pursuant to a variety of arrangements and practices. Our customers regularly revise release schedules to correspond to their own production requirements. We believe that the aggregate value of scheduled releases outstanding on our books at any time cannot be considered firm backlog because those releases may be revised at any time. We also believe that increases or decreases in the aggregate value of scheduled releases are not necessarily indicative of any trend in our net sales. Operations

~~Competition~~ 19

~~The~~Item ~~markets in which we compete are characterized by intense price competition and increasing customer requirements for quality and service~~7A. We compete for business primarily on the basis of quality, service, engineering capability, and price. We encounter substantial competition from a large number of domestic and foreign-based manufacturing companies. Our competitors range from small and medium-sized specialized firms to large diversified companies, many of which have resources substantially greater than ours. Additionally, some of our customers have internal manufacturing operations that compete with us.

~~Research~~Quantitative and ~~Development~~ Qualitative Disclosures about Market Risk

During 2007, 2006, and 2005, we spent approximately $915,000, $1,093,000, and $931,000, respectively, on our research and development activities, which are primarily related to improving our manufacturing processes in order to reduce the cost and increase the quality of our products. 41

~~Environmental~~Item ~~Compliance~~ 8.

~~Our~~Financial ~~operations~~Statements ~~are subject to numerous laws~~ and ~~regulations~~Supplementary controlling the discharge of materials into the environment or otherwise relating to the protection of the environment. Although we make expenditures relating to the protection of the environment, compliance with environmental laws and regulations has not had a significant impact on our capital spending requirements, earnings, or competitive position. We cannot assure you that changes in environmental laws and regulations, or in the interpretation or enforcement of those laws and regulations, will not require material expenditures in the future. Data

~~-5-~~ 42

~~Table~~Item ~~of Contents~~9.

~~Employees~~ Changes in and Disagreements with Accountants on Accounting and

WeFinancial ~~believe that our employee relations are generally good. The following table shows the number of employees at December 31, 2007, 2006, and 2005.~~ Disclosure

	December 31
	2007		2006		2005
Rubber Group		538		594		685
Metals Group		121		104		107
Corporate Office		7		8		5
		666		706		797

AtItem December 31, 2007, 2006, and 2005, employees at the Rubber Group included 224, 277, and 321 hourly workers at two plant locations that were subject to collective bargaining agreements, which expire on October 19, 2008, and December 11, 20089A(T). ~~Negotiations have not commenced regarding the extension of these agreements.~~

~~Discontinued~~Controls ~~Operations~~ and Procedures

During 2005, we sold or liquidated all of the assets of our die casting business except its land and buildings. In this Form 10-K, the die casting business is reported as discontinued operations. For more information about the closing of the die casting business, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, and to Note 13, “Discontinued Operations,” in the notes to our consolidated financial statements in Part II, Item 8. Unless otherwise indicated, the data set forth in this Form 10-K relate solely to our continuing operations. 76

~~Filings~~Item ~~with~~9B. ~~the Securities and Exchange Commission~~

WeOther do not make available through a website our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, or any amendments to those reports. We will furnish free of charge, upon written request to our President at 800 Third Avenue, 15th Floor, New York, NY 10022, a paper copy of the reports that we file with the Securities and Exchange Commission. The reports have been filed electronically with the Commission and are accessible on the Commission’s website at www.sec.gov. Information

~~Item 1A. RISK FACTORS~~ 78

WePART ~~are subject to risks associated with bankruptcy proceedings.~~ III

OnItem ~~April 1, 2008, the Company filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code~~10.

We do not believe that we will need to utilize the provisions of the Bankruptcy Code to effect any significant operational restructuring or to eliminate or renegotiate any unprofitable executory contracts that are material to our business. Our operations are healthy and profitable andDirectors, ~~although~~ ~~there~~Executive ~~can be no assurance~~Officers, ~~we expect that to continue throughout the term of chapter 11 proceedings. We have experienced no disruptions in our operations to date~~ and, ~~based~~Corporate ~~upon~~Governance ~~discussions with a significant number~~ of ~~major suppliers and customers, we do not expect any such disruption during~~ the ~~term of the chapter 11 proceedings.~~ Registrant

~~-6-~~ 79

~~Table~~Item ~~of Contents~~11.

~~Although~~Executive there can be no assurance that we will be successful, our intent in filing for chapter 11 protection is to use the powers afforded us under the Bankruptcy Code to effect a financial restructuring that results in a significant reduction in our total indebtedness on a basis that is fair and equitable to all of our creditors and stockholders. We intend to file a plan of reorganization with the Bankruptcy Court no later that June 30, 2008, and hope to confirm that plan by September 30, 2008. We expect that our plan of reorganization will result in a significant reduction in our aggregate indebtedness by means of a conversion of a significant portion of our subordinated debt to equity. We also intend to retain all of our operations, including the medical business. Compensation

~~The risks and uncertainties associated with the chapter 11 proceedings may have a material adverse effect on our results of operations and financial condition.~~ 79

~~Our~~Item ~~consolidated financial statements have been presented on a “going concern basis,” as such term is used in U~~12.S. generally accepted accounting principles. A going concern basis contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to reorganize the Company is subject to risks and uncertainties. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect these risks and uncertainties.

WeSecurity ~~are~~Ownership ~~dependent~~of onCertain aBeneficial ~~few~~Owners ~~major~~and ~~customers.~~ Management and

InRelated ~~2007,~~Stockholder the three largest customers of the Rubber Group accounted for 30.5% of the Rubber Group’s net sales, and the three largest customers of the Metals Group accounted for 55.2% of the Metals Group’s net sales. Loss of a significant amount of business from any of our large customers would have a material adverse effect on our results of operations and financial condition if such business were not substantially replaced by additional business from existing or new customers. Additionally, our results of operations and financial condition could be materially adversely affected if any of our large customers experienced financial difficulties that caused them to delay, or fail to make, payments for goods sold to them. Matters

~~We are highly dependent on the automotive industry.~~ 79

~~Net~~Item ~~sales to customers in the automotive industry represented approximately 78~~13.5%, 83.6%, and 86.3% of our consolidated net sales in 2007, 2006, and 2005, respectively. Approximately 40.5% of our net sales in 2007 were to companies that supply electrical wiring and ignition systems to manufacturers of new cars and trucks. Sales to these customers are in part tied to the rate of sales of new vehicles. Further declines in new vehicle sales could have an adverse effect on our results of operations and financial condition.

WeCertain ~~encounter~~Relationships ~~significant~~and ~~competition.~~ Related Transactions, and Director Independence

The markets in which we compete are characterized by intense price competition and increasing customer requirements for quality and service. We compete for business primarily on the basis of quality, service, engineering capability, and price. We encounter substantial competition from a large number of domestic and foreign-based manufacturing companies. Our competitors range from small and medium-sized specialized firms to large diversified companies, many of which have resources substantially greater than ours. Additionally, some of our customers have internal manufacturing operations that compete with us. 79

~~-7-~~ Item 14.

~~Table~~Principal ofAccountant ~~Contents~~Fees and Services

~~A lack of effective internal control over financial reporting may result in an inability to accurately report our financial results.~~ 79

InPART connection with management’s evaluation of our internal control over financial reporting, management identified significant deficiencies that, in the aggregate, constitute a material weakness. Our management concluded that we have incomplete documentation of the internal control system, we lack a procedure for documenting certain internal control activities, interdivisional internal control duties are not completely segregated, and we have been unable to test the operational effectiveness of our internal control over financial reporting. A failure to implement and maintain effective internal control over financial reporting could result in a material misstatement of our financial statements or otherwise cause us to fail to meet our financial reporting obligations. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports. For more information on our internal controls over financial reporting, please refer to “Controls and Procedures” in Part II, Item 9A(T). IV

WeItem ~~may not be able to remediate the material weakness in our internal control over financial reporting~~15.

~~Although~~Exhibits its is our intention to remediate the material weakness in our internal control over financial reporting, on April 1, 2008, we filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code. Because of the additional demands placed on our limited number of accounting professionals due to the bankruptcy filing and ~~the~~Financial ~~substantial~~Statement financial resources required to remediate the deficiencies noted above, we may not be able to remediate these weaknesses prior to the initial audit of our internal control over financial reporting by a registered public accounting firm. If we are unable to remediate the weaknesses prior to this audit, we will encounter difficulties in the audit of our internal controls by our outside independent auditors, which may have an adverse effect on our ability to prepare financial statements in accordance with U.S. generally accepted accounting principles and to comply with the reporting requirements of the Securities and Exchange Commission. For more information on our internal controls over financial reporting, please refer to “Controls and Procedures” in Part II, Item 9A(T). Schedules

~~Part of our labor force is unionized.~~ 80

Ati December 31, 2007, employees at the Rubber Group included a total of 224 hourly workers at two plant locations that were subject to collective bargaining agreements, which expire on October 19, 2008, and December 11, 2008. We cannot assure you that our existing union contracts will be successfully renegotiated when they expire. Negotiations have not commenced regarding the extension of those agreements. If we were to experience a strike or work slowdown, it would have a material adverse effect on our results of operations and financial condition.

~~Our~~PART ~~major customers may be subject to labor interruptions.~~ I

~~Many~~Item ~~of our customers and the three Detroit-based automobile manufacturers have union contracts with various unions~~1. ~~Protracted strikes or work slowdowns at our customers or at any of the Detroit-based automobile manufacturers could have a material adverse effect on our results of operations and financial condition.~~ BUSINESS

WeOur ~~are~~company ~~vulnerable~~was toincorporated ~~fluctuations~~in Delaware in 1966. Substantially all of our business is conducted in the ~~cost~~continental United States. Through our two operating segments, the Rubber Group and ~~supply~~the ofMetals ~~raw~~Group, ~~materials~~we manufacture rubber and metal components that are sold to other manufacturers.

WeIn ~~purchase~~2008, ~~raw~~net ~~materials~~sales ~~from~~of ~~various~~the ~~suppliers.~~Rubber ~~While~~Group ~~all~~totaled $62,278,000, or 85.3% of our ~~raw~~consolidated ~~materials~~net ~~are~~sales. ~~available from~~The aRubber ~~number~~Group ofmanufactures ~~suppliers,~~tight-tolerance ~~commodity~~rubber ~~raw~~components. ~~materials~~The ~~are~~Rubber ~~subject~~Group’s toprimary ~~fluctuations~~products are insulators used in ~~price.~~both ~~Because raw~~aftermarket ~~materials~~and OEM automotive ignition-wire sets, connector seals used in ~~the~~automotive ~~aggregate~~wiring ~~constitute~~systems, ~~approximately~~and ~~36%~~molded ofrubber ~~our~~components ~~cost~~used in a variety of ~~goods~~medical ~~sold~~devices, ~~upward movement~~such of as intravenous medication-delivery systems, syringes, and laparoscopic surgical equipment.

In 2008, net sales of the Metals Group totaled $10,751,000, or 14.7% of our consolidated net sales. The Metals Group manufactures machined metal components from aluminum, brass, steel, and stainless steel bars, forgings, and cold-8- headed blanks. The Metals Group’s sales are primarily to automotive OEMs.

~~Table~~The following table summarizes net sales of ~~Contents~~the Rubber Group and the Metals Group during 2008, 2007, and 2006 by the type of product in which each segment’s components were utilized (dollar amounts in thousands):

raw material prices could have a material adverse effect on our results of operations. We have generally been successful in passing through to our customers increases in the prices of raw materials, although price increases to our customers have typically lagged behind the price increases from our suppliers. We attempt to minimize the effect of raw material price increases by seeking other sources of supply, substituting alternative materials, and reformulating compounds.

	Years Ended December 31
	2008				2007				2006
Rubber Group:

Automotive — aftermarket	$	26,569	42.7	%	$	25,786	34.6	%	$	27,906	36.7	%
Automotive — OEM		18,006	28.9			31,255	41.9			35,138	46.2
Medical devices		16,300	26.2			15,928	21.4			11,039	14.5
Industrial		851	1.4			971	1.3			1,176	1.5
Other		552	0.8			647	0.8			831	1.1

Total net sales	$	62,278	100.0	%	$	74,587	100.0	%	$	76,090	100.0	%

Metals Group:

Automotive — OEM	$	8,764	81.5	%	$	11,595	83.9	%	$	9,488	80.3	%
Industrial and residential equipment and devices		1,635	15.2			1,865	13.5			1,992	16.9
Other		352	3.3			361	2.6			331	2.8

Total net sales	$	10,751	100.0	%	$	13,821	100.0	%	$	11,811	100.0	%

WeFinancial ~~have~~data ~~not~~for ~~experienced~~our ~~any~~operating ~~disruption~~segments can be found in ~~our~~“Management’s ~~production~~Discussion asand aAnalysis ~~result~~of Financial Condition and Results of ~~raw~~Operations” ~~material shortages~~in Part II, ~~but~~Item 7, ifunder ~~any~~the ~~such~~section ~~shortage~~titled ~~were~~“Results toof ~~occur~~Operations – Comparison of 2008, it2007, ~~could~~and ~~have~~2006,” aand ~~material~~in ~~adverse~~Note ~~effect~~10, on“Segments,” ~~our results~~in ofthe ~~operations~~notes ~~and~~to our consolidated financial ~~condition~~statements in Part II, Item 8.

We- ~~are~~1 ~~subject to numerous environmental laws and regulations.~~ -

~~Our~~Filing ~~past and present business operations and our ownership and operation~~ of ~~real~~Chapter property are subject to extensive and changing environmental laws and regulations pertaining to the discharge of materials into the environment, the handling and disposal of wastes, including hazardous wastes, and the protection of the environment. Some of our existing and former locations use and have used substances and generate or have generated or disposed of wastes that are or may be considered hazardous or otherwise are subject to applicable environmental requirements. In addition, we utilize storage tanks and bulk containers for petrochemicals and other substances at our facilities. Based on our experience to date, we do not expect environmental claims or the costs of compliance with federal, state, and local, environmental laws and regulations to have a material impact on our capital expenditures, operating results, or financial condition. We cannot assure you, however, that the discovery of presently unknown environmental conditions, changes in environmental laws and regulations or their interpretation, or other unanticipated events will not give rise to expenditures or liabilities that may have a material adverse effect on our results of operations and financial condition. 11

During the second half of 2006, we experienced a significant decrease in sales of automotive components for new cars and trucks. We ~~may~~believe bethat ~~subject~~this reduction was primarily a result of production cutbacks by the Detroit-based automakers and resultant production cutbacks and inventory adjustments by our customers who supply the automobile manufacturers. Although we reduced expenses in an effort to ~~product~~offset ~~liability~~the ~~claims~~impact of the lower sales, our operating profit and ~~litigation~~cash flow during the second half of 2006 were adversely affected, as was the availability under our revolving line of credit. As a result, we were unable to continue to make payments on our subordinated debt.

~~Our~~We ~~business~~have ~~exposes~~not usmade ~~to potential product liability. Many of~~ the ~~components~~scheduled ~~manufactured and~~interest ~~sold~~payments bydue uson ~~are~~our ~~designed~~Senior toSubordinated beNotes ~~used~~since ~~for~~November 1, ~~long periods of time~~2006. ~~Component~~From ~~failures~~May 25, ~~manufacturing flaws~~2007, ~~design~~through ~~defects~~January 24, or2008, ~~inadequate~~we ~~disclosure~~operated ofunder ~~product-related~~a ~~risks~~forbearance agreement with ~~respect~~six tohedge ~~our components~~funds orthat ~~the~~hold ~~products~~$25,428,000 inaggregate ~~which~~principal ~~they are incorporated could result in product failure or an unsafe condition or injury to~~amount, or ~~death of~~74.4%, ~~consumers. The occurrence~~ of ~~such~~the aSenior ~~problem~~Subordinated ~~could result~~Notes inoutstanding. ~~product~~While ~~liability~~the ~~claims~~forbearance oragreement awas ~~recall~~in ofeffect, orwe ~~safety~~were ~~alert~~not ~~relating~~required to, ~~our~~make ~~components~~interest ~~or the~~payments ~~products~~on inthe ~~which~~Senior ~~they~~Subordinated ~~are~~Notes, ~~incorporated.~~and ~~We cannot assure you that~~ the ~~product~~forbearing ~~liability insurance~~noteholders ~~maintained~~could bynot ustake ~~would~~any beaction ~~available or sufficient~~ to ~~satisfy~~collect ~~all~~any ~~claims~~past ~~against~~due usinterest ~~or that~~payments. weAn ~~will~~additional be$7,772,000 ~~able~~aggregate toprincipal ~~obtain~~amount, ~~insurance~~or in22.7%, of the ~~future~~Senior atSubordinated ~~satisfactory~~Notes ~~rates,~~outstanding inis ~~adequate~~held ~~amounts, or~~by atcertain ~~all.~~of ~~Future~~our ~~product~~affiliates ~~liability~~and ~~claims,~~members ~~regardless~~ of their ~~ultimate~~families. ~~outcome,~~The orinterest ~~product recalls~~rate ~~could~~on ~~result~~the inSenior ~~costly~~Subordinated ~~litigation~~Notes ~~and~~was ~~could~~increased ~~have~~from a12% ~~material~~to ~~adverse~~16% ~~effect~~for onthe ~~our~~period ~~results of~~from ~~operations~~March ~~and~~9, ~~financial~~2007, ~~condition~~through ~~and~~March ~~could~~31, ~~damage~~2008. ~~our~~At ~~reputation~~December 31, ~~and~~2008, ~~limit~~accrued interest on our ~~ability~~Senior toSubordinated ~~attract~~ Notes ~~and~~totaled ~~retain customers~~$13,055,000.

~~Self~~ The failure to make the scheduled interest payments on the Senior Subordinated Notes caused a cross-~~insurance~~default ~~may~~under ~~subject~~the usagreements togoverning ~~possible~~our ~~liability~~senior, secured debt. Additionally, we were not in compliance with certain financial covenants. From May 25, 2007, through January 24, 2008, we operated under a forbearance arrangement with the senior, secured lenders. The forbearance agreement (1) provided that ~~may~~the besenior, ~~partially~~secured lenders would take no action to accelerate or ~~completely~~collect ~~uninsured~~their loans as a result of any existing default or cross-default and (2) modified certain of the financial covenants effective March 31, 2007. During the forbearance period, we remained in compliance with all financial covenants, as modified, and we remained current on all principal and interest payments owed to the secured lenders.

WeUpon ~~maintain~~the ~~insurance~~commencement ~~coverage for many aspects~~ of ~~our~~the ~~business~~forbearance ~~and~~period, ~~operations.~~we ~~Based~~engaged ~~on our evaluation of~~ the ~~various~~investment ~~risks~~banking tofirm ~~which~~of weW.Y. ~~may~~Campbell be& ~~exposed,~~Company weto ~~retain~~assist ~~all~~in or a ~~portion~~review of the ~~liability~~ ~~for potential~~various ~~losses~~strategic ~~because~~alternatives ofavailable ~~various~~to ~~deductibles,~~us ~~coverage~~to ~~limits,~~satisfy ~~and~~our ~~retentions~~outstanding indebtedness. ~~Although~~As ~~there can~~a beconsequence noof ~~assurance~~this ~~that~~review, we ~~will~~determined beto ~~successful~~pursue ina ~~our~~sale ~~efforts,~~of wethe ~~attempt~~assets toand ~~limit~~business ~~our~~of ~~liability through,~~the ~~among~~Rubber ~~other~~Group ~~things~~and, with the ~~ongoing~~assistance ~~training~~of ~~and~~W.Y. Campbell, ~~education~~prepared ofan ~~our~~offering ~~employees,~~memorandum with respect to the ~~implementation~~ ofproposed ~~safety~~sale. ~~programs,~~During the ~~ongoing~~summer ~~testing~~ and ~~evaluation~~fall of ~~the~~2007, ~~safety~~we ~~and~~distributed ~~suitability of~~the ~~our~~offering ~~workplace~~memorandum ~~environments,~~to ~~the~~a ~~development~~number of ~~sound~~interested ~~business practices~~parties, ~~and~~including ~~the~~both ~~exercise~~financial ~~of care~~ and ~~judgment~~strategic ~~in the negotiation of~~ purchasers.

During the fourth quarter of 2007, we received several offers to purchase all or portions of the assets of the Rubber Group. Based upon these offers and the advice of W.Y. Campbell, we concluded that (1) the value of the Rubber Group alone was significantly in excess of our total indebtedness and (2) the proposal that would provide the maximum value for all of our constituencies was an offer from a major, multi-9national, industrial company to purchase our facility in Rock Hill, South Carolina, which specializes in manufacturing molded rubber components for use in medical devices. The proposed purchase price of $32,000,000 would have resulted in an after- tax gain of approximately $26,000,000.

~~Table~~During January 2008, we approached the six hedge funds that own a majority of ~~Contents~~our Senior Subordinated Notes to advise them of the following:

~~contracts with our customers~~1. ~~However, we cannot assure you that we will be successful in our efforts to limit our liability.~~

We ~~are~~had ~~subject~~decided to ~~interest~~pursue ~~rate~~the ~~changes.~~ proposal to purchase the Rock Hill facility;

~~At December 31, 2007, we had a total of $33,821,000 of outstanding floating~~-~~rate~~ ~~debt~~2 at interest rates equal to either the London Interbank Offered Rate (“LIBOR”) or the prime rate plus a fixed interest component. Currently, we do not purchase derivative financial instruments to hedge or reduce our interest rate risk. As a result, changes in either LIBOR or the prime rate affect the rates at which we borrow funds. -

~~Item~~ 2. ~~PROPERTIES~~

~~The~~We ~~following~~had ~~table~~received ~~shows~~a ~~the~~proposal ~~locations~~from ~~and~~a ~~square~~new ~~footage~~senior, ofsecured ~~our~~lender ~~manufacturing~~to ~~facilities~~provide ~~at December 31~~us with a $36,700,000 ~~2007:~~ senior, secured credit facility upon completion of the sale of the Rock Hill facility;

	Square
	Feet
Rubber Group:
Jasper, Georgia		100,000
North Canton, Ohio		42,000
Vienna, Ohio		64,000
Rock Hill, South Carolina		61,000
Total Rubber Group		267,000
Metals Group:
Rochester, New York		60,000
Total Company		327,000

~~All~~We ofbelieved ~~our~~that ~~plants~~the ~~are~~proceeds ~~general~~of ~~manufacturing~~the ~~facilities~~sale ~~suitable~~and ~~for~~the ~~our~~new ~~operations.~~credit Wefacility ~~believe that~~would ~~our~~permit ~~facilities~~us ~~are~~to ~~adequate~~pay toall ~~meet~~accrued ~~our~~interest ~~current~~on ~~operating~~the ~~needs.~~Senior ~~All~~Subordinated ofNotes ~~our~~plus ~~manufacturing facilities~~50% ~~are~~of ~~owned~~the byprincipal ~~us,~~amount ~~and~~of ~~all~~the ~~are~~Senior ~~encumbered~~Subordinated Notes held by ~~mortgages.~~ non-affiliates;

~~We occupy, in the aggregate,~~ 4~~,000 square feet of office space for corporate executive and administrative purposes~~. ~~We lease an office in Cleveland, Ohio, and reimburse an affiliate for the cost of leasing an office in New York City.~~

~~The~~In ~~manufacturing~~order ~~facility~~to ~~that~~facilitate ~~was~~the ~~utilized by our discontinued die casting business is located in Lakewood~~refinancing, ~~New~~the ~~York,~~balance ~~has 93,000 square feet~~ of ~~space,~~the ~~and~~Senior isSubordinated ~~being~~Notes held ~~for~~by ~~sale.~~non-affiliates ~~The facility~~would ishave ~~currently leased~~ to abe ~~third~~extended ~~party for $159,000 per annum. The lessee has an option~~ to ~~purchase~~ ~~the~~mature ~~facility~~on ~~for~~August $131,~~590,000.~~ ~~We also own a 10~~2013,~~000~~ ~~square~~and ~~foot~~would ~~building~~receive incash ~~Lakewood,~~interest ~~New York,~~at ~~that~~12% isper ~~vacant~~annum; and ~~available for sale.~~

~~We own approximately 18 acres of land bordering State Route 515 in Ellijay, Georgia~~5. This land, which was acquired as a potential plant site, is currently being graded so that it will be more suitable for industrial or commercial development. The property has a book value of $813,000 and an appraised value of $4,200,000 as of March 27, 2006. Additionally, we own six abutting residential lots, comprising approximately 7 acres.

~~-10-~~ We had agreed that the 22.7% of the Senior Subordinated Notes held by affiliates would be converted into shares of our common stock concurrently with the completion of the refinancing transactions described above.

~~Table~~At the same time, we requested an extension of ~~Contents~~the forbearance agreement to May 31, 2008, in order to provide the prospective purchaser and the new senior, secured lender the time they required to complete their due diligence and documentation.

~~Item 3~~In late January 2008, the six hedge funds responded with an alternative proposal for an extension of the forbearance arrangement. ~~LEGAL~~After ~~PROCEEDINGS~~ reviewing this proposal with our counsel and W.Y. Campbell, we concluded that it would not be in the best interests of all of our creditors and equity holders to proceed with an extension on the terms proposed. Further discussions were unproductive and, as a result, the forbearance agreement expired on January 25, 2008. Because the forbearance agreement with the hedge funds was not extended, the forbearance agreement with the senior, secured lenders also expired on January 25, 2008, and we were in default of our senior, secured financing agreements.

OnSubsequent ~~April 1,~~to ~~2008~~the expiration of the forbearance agreements, we ~~filed~~continued aour ~~voluntary~~discussions ~~petition~~with in the ~~United~~six ~~States~~hedge ~~Bankruptcy~~funds ~~Court~~and ~~for~~proposed ~~the Southern~~a ~~District~~number of ~~New~~transactions ~~York~~for ~~seeking~~the ~~relief~~restructuring ~~under~~of ~~the~~our ~~provisions~~debt, but each of ~~chapter~~these 11proposals ofwas ~~the~~rejected. ~~United States~~Ultimately, ~~Bankruptcy~~we ~~Code~~determined ~~(Case~~that ~~No. 08-11153).~~the Webest ~~will~~available ~~continue~~method to ~~operate~~effect ~~our~~a ~~businesses~~restructuring ~~and~~of ~~manage~~ our ~~properties~~debt ason ~~debtors~~terms inthat ~~possession~~would ~~under~~be ~~the~~fair ~~jurisdiction~~to all of ~~the~~our ~~Bankruptcy~~creditors ~~Court~~ and ~~in accordance~~stockholders ~~with~~was ~~the~~to ~~applicable~~utilize the provisions of ~~the~~chapter ~~Bankruptcy~~11 ~~Code and orders~~ of the Bankruptcy ~~Court~~ Code.

InOn ~~connection~~April ~~with~~1, ~~the chapter 11~~2008, we filed a ~~motion~~voluntary ~~seeking~~petition ~~Bankruptcy~~for ~~Court~~relief ~~approval~~under ofchapter ~~(a) an~~11 ~~arrangement~~of ~~pursuant~~title to11 ~~which~~of wethe ~~are~~United ~~permitted~~States toCode ~~use~~in the ~~cash~~United inStates ~~our~~Bankruptcy ~~various~~Court ~~bank~~for ~~accounts~~the ~~and cash~~Southern ~~receipts~~District ~~in respect~~ of ~~our~~New ~~accounts~~York ~~receivable,~~(Case No. ~~all~~08-11153). ofIn ~~which~~connection ~~are~~with ~~part~~this ofpetition, ~~the~~we ~~collateral securing~~obtained ~~our~~a ~~senior, secured~~ financing ~~arrangements,~~package inthat ~~return~~we ~~for~~believed ~~certain~~provided ~~adequate~~us ~~protection,~~more ~~and (b) an~~than ~~unsecured,~~adequate ~~super-priority,~~liquidity ~~debtor-in-possession~~to ~~(“DIP”)~~operate ~~credit~~our ~~agreement,~~business ~~among~~without ~~us,~~interruption ~~as borrowers,~~throughout ~~and~~the ~~Lubin~~term ~~Partners~~of ~~LLC,~~the ~~William~~chapter B11 proceedings. ~~Conner,~~This ~~and~~financing ~~ORA~~package ~~Associates~~consisted ~~LLC,~~of as(1) ~~lenders.~~an ~~The~~arrangement ~~DIP credit~~with ~~agreement~~our ~~provides~~senior, ~~for~~secured anlenders ~~unsecured,~~to ~~super-priority~~freeze the loan ofunder ~~$4,000,000.~~our ~~Michael~~revolving A.line ~~Lubin, the~~of ~~Chairman~~credit ofat the ~~Board,~~amount ~~co-principal~~outstanding ~~executive~~on ~~officer~~April 1, 2008, and ~~nominee~~to ~~for~~permit ~~director~~us ofto ~~the~~utilize ~~Company, is~~ the ~~managing~~collections ~~member~~on ofour ~~Lubin~~accounts ~~Partners~~receivable ~~LLC.~~in ~~Mr. Conner~~the isoperation aof ~~director~~our ~~and~~business ~~nominee~~through ~~for~~February ~~director~~25, ~~of the~~2009, ~~Company.~~which ~~Mr. Lubin~~was issubsequently aextended ~~creditor~~to ~~and~~May ~~stockholder~~22, of2009, ~~the Company~~ and ~~Mr.~~(2) ~~Conner~~an isunsecured, asuper-priority ~~stockholder of~~debtor-in-possession ~~the~~loan ~~Company.~~in ~~The~~the ~~cash~~amount ~~collateral and proceeds~~ of ~~the~~$4,000,000, ~~loans~~which ~~under~~matures ~~the~~on ~~DIP~~December ~~credit~~31, ~~agreement~~2009. ~~will~~The bearrangement ~~used~~with bythe ~~us for working capital~~senior, ~~capital~~secured ~~expenditures,~~lenders ~~and~~provided ~~other~~for ~~general~~a ~~corporate~~continuation ~~purposes~~ of ~~ours~~ ~~and~~the ~~for~~scheduled ~~the~~monthly, ~~costs~~term ofloan ~~administration~~principal ofpayments, ~~the~~which ~~chapter~~aggregate ~~11.~~$269,000 ~~The~~per ~~arrangement~~month, ~~for~~and the ~~use~~elimination of ~~cash collateral and~~ the ~~DIP~~default ~~credit~~interest ~~agreement~~premium, ~~contain~~so ~~certain~~that ~~financial~~our ~~and~~interest ~~other~~rates ~~covenants~~returned ~~and~~to ~~certain events of default. On April 2, 2008,~~ the ~~Court~~original ~~issued~~contractual anrates. ~~order~~The ~~authorizing~~debtor-in-possession usloan tois ~~utilize~~subordinated up to ~~$2,000,000~~ ~~under~~ the ~~DIP~~senior, ~~credit~~secured ~~agreement. On April 17~~loans, ~~2008,~~and ~~the~~bears ~~Court~~interest ~~issued~~at aLIBOR ~~final~~plus ~~order authorizing~~7%, ussubject to ~~obtain~~a ~~DIP~~minimum ~~loans~~interest inrate ~~the aggregate amount~~ of ~~$4,000,000~~10%.

InDuring ~~addition, we are subject to various claims and legal proceedings covering a wide range of matters that arise in~~ the ~~ordinary~~second ~~course~~half of ~~our~~2008, ~~business activities. It is our policy to record accruals for claims and legal proceedings when~~ we ~~consider~~experienced a ~~loss~~dramatic todownturn bein ~~probable~~automotive ~~and~~original weequipment ~~can reasonably~~volume, ~~estimate the amount of that loss. The various actions to~~ which weresulted ~~are or may~~ in ~~the future~~operating belosses ~~a party are~~ at various stages of completion. Although there can be no assurance as to the outcome of existing or potential litigation, we currently believe, based upon the information available to us, that the outcome of those actions will not have a material adverse effect upon our ~~results~~ ofconnector-seal ~~operations~~facility orlocated ~~financial~~in ~~condition.~~

~~Item 4.~~- ~~SUBMISSION~~3 ~~OF MATTERS TO A VOTE OF SECURITY HOLDERS~~ -

WeVienna, OH. ~~did~~Because of these losses and because we do not ~~submit~~believe ~~any~~that ~~matters~~it will be possible to areturn ~~vote~~this facility to an adequate level of ~~security~~profitability ~~holders~~in the foreseeable future, during the ~~fourth~~first quarter of ~~2007~~2009, we decided to close this facility and move the production to our other rubber molding facilities. We believe that the effectuation of this plan will significantly enhance our ability to obtain the financing we need to exit chapter 11. In order to allow us sufficient time in which to complete the operational restructuring of our connector-seal business, including the closing of the Vienna facility and the relocation of the connector-seal business to our other rubber molding facilities, on January 13, 2009, we filed a motion requesting that the Bankruptcy Court extend the time during which we have the exclusive right to file a plan of reorganization and our right to use cash collateral. Subsequent to a hearing held on our motion on February 23 and 24, 2009, the Bankruptcy Court extended our exclusive right to file a plan of reorganization until April 30, 2009, extended our exclusive right to solicit acceptances of such plan until June 1, 2009, and extended our right to use cash collateral to May 22, 2009. In addition, by mutual agreement, the maturity date of the debtor-in-possession loan was extended from April 1, 2009, to December 31, 2009. For more information on the restructuring of our connector-seal business, please refer to the discussion of the Rubber Group in the section titled “Results of Operations — Comparison of 2008, 2007, and 2006” in this Part II, Item 7.

-Although we cannot assure you that we will be successful, our intent in filing for chapter 11 protection was to use the powers afforded us under the Bankruptcy Code to effect a financial restructuring that would result in a significant reduction in our total indebtedness on a basis that would be fair and equitable to all of our creditors and stockholders. On June 30, 2008, we filed with the Bankruptcy Court a plan of reorganization. On August 8, 2008, we filed an amended plan of reorganization, which was further amended in December 2008 (the “Amended Plan”). On December 8, 2008, the Amended Plan and a proposed disclosure statement with respect to the Amended Plan were filed with the Bankruptcy Court. Although we currently plan to complete the consolidation of the connector-seal business prior to seeking approval of the Amended Plan, if the Amended Plan becomes effective without further amendment, the following distributions would be made:

~~Table of Contents~~—

~~PART~~The II senior, secured credit facility would be repaid in full in cash;

~~Item 5. MARKET FOR OUR COMMON STOCK AND OTHER STOCKHOLDER MATTERS~~ —

~~Our~~Each ~~common~~holder ~~stock~~of isa ~~traded~~general inunsecured ~~the over-the-counter market through the Pink Sheets. At March 27~~claim, ~~2008,~~other ~~there~~than ~~were approximately 575~~ holders of ~~record~~Senior ofSubordinated ~~our~~Notes ~~common~~and ~~stock.~~the ~~Trading~~Junior inSubordinated ~~shares~~Note, ~~of our~~would ~~common~~receive ~~stock~~an isinitial ~~limited.~~cash ~~During~~payment ~~2007~~equal ~~and~~to ~~2006,~~10% ~~certain~~of ~~trading~~their ~~data~~claim ~~for~~and ~~our~~nine ~~stock~~additional ~~was~~cash ~~available on~~payments, ~~the~~each ~~OTC~~equal ~~Bulletin~~to ~~Board~~10.75% ~~operated by the National Association~~ of ~~Securities~~their ~~Dealers~~claim, ~~Inc.~~payable ~~(NASD). The~~quarterly, ~~following~~commencing ~~table~~three ~~sets~~months ~~forth~~after ~~prices at which transactions in our common stock were reported on~~ the ~~OTC~~effective ~~Bulletin~~date ~~Board.~~of ~~Additional trading data can be found at~~ the ~~NASD~~Amended ~~website, www.nasdaq.com.~~ Plan;

	Years Ended December 31
	2007				2006
	High		Low		High		Low
First quarter	$	0.41	$	0.10	$	0.80	$	0.67
Second quarter	$	0.70	$	0.13	$	1.01	$	0.60
Third quarter	$	0.80	$	0.60	$	0.90	$	0.70
Fourth quarter	$	0.70	$	0.25	$	0.80	$	0.41

—

~~These~~Each ~~prices~~holder ~~reflect~~of ~~inter-dealer~~a ~~prices~~Senior ~~and~~Subordinated ~~may~~Note ~~not~~claim ~~necessarily~~would ~~represent~~receive ~~actual transactions.~~shares Weof ~~are~~new ~~not~~Series ~~able~~C toPreferred ~~determine~~Stock ~~whether~~with ~~retail~~an ~~markups,~~aggregate ~~markdowns,~~liquidation orpreference ~~commissions~~equal ~~were included~~to intheir ~~the~~claim, ~~above~~increasing ~~prices.~~at Wethe ~~believe~~rate ~~that~~of ~~eight~~6% ~~brokerage~~per ~~firms~~annum, ~~currently~~and ~~make~~convertible ainto ~~market in our~~ common stock, ~~although~~at ~~both~~$4.46 ~~bid~~per share; and ~~asked quotations may be limited.~~

We have not paid dividends on our common stock since 1979, and we have no current plans to reinstate the payment of dividends. In addition, agreements defining the rights of the holders of our debt currently restrict us from paying cash dividends on our common stock. At December 31, 2007, we were in arrears in the payment of five quarterly dividends in the aggregate amount of $33,000 on our $8 Cumulative Convertible Preferred Stock, Series B (the “Series B Preferred Stock”), and we are in arrears with respect to the redemption of all of the outstanding Series B Preferred Stock for an aggregate redemption price of $660,000, representing the scheduled redemptions for 2000 through 2007. —

~~-12-~~ Each holder of a Junior Subordinated Note claim and a Series B Preferred Stock interest would receive new shares of common stock with a value equal to their claim or interest.

~~Table~~ If the Amended Plan had become effective on December 31, 2008, $48,407,000 of our ~~Contents~~liabilities would have been converted into equity securities. For a detailed description of the Amended Plan, the classification and treatment of claims and interests, and the proposed terms of the Series C Preferred Stock, please refer to the proposed disclosure statement filed with the Bankruptcy Court on December 8, 2008. The proposed disclosure statement along with other documents related to the chapter 11 proceedings can be found at http://chapter11.epiqsystems.com/lexington.

~~Performance~~- ~~Graph~~ 4 -

~~The~~We ~~following~~cannot ~~graph~~assure ~~compares~~you ~~the~~that ~~five year cumulative total return on our common stock to~~ the ~~total~~ ~~returns~~Amended onPlan ~~the~~will ~~Standard~~be ~~& Poor’s 500 Stock Index, the NASDAQ (National Stocks Data and Automated Quotes) Composite Index, and the NASDAQ Industrial Index~~confirmed. The ~~graph~~Amended ~~shows~~Plan ~~the~~may ~~growth~~be offurther ~~a $100~~amended. ~~investment~~If ~~in our common stock and each of~~ the ~~above~~Amended ~~indices~~Plan onis ~~December 31,~~not ~~2002,~~confirmed ~~and the reinvestment of all dividends. The comparisons in this table are required~~ by the ~~Securities~~Bankruptcy ~~and Exchange~~Court, ~~Commission~~it ~~and~~is ~~are~~unclear ~~not~~what ~~intended~~holders toof ~~forecast~~claims or beequity ~~indicative~~interests ofwould ~~possible~~ultimately ~~future performance~~receive ofwith ~~our~~respect ~~common~~to ~~stock~~their claims or ~~the referenced indices~~interests.

	2002		2003		2004		2005		2006		2007
Lexington Precision Corporation		100.00		150.94		113.21		132.08		77.36		47.17
S&P 500 Index		100.00		128.69		142.69		149.70		173.34		182.86
NASDAQ Composite Index		100.00		150.02		162.90		165.14		180.87		198.61
NASDAQ Industrial Index		100.00		155.74		180.41		180.63		203.01		211.58

The risks and uncertainties associated with the chapter 11 proceedings, including our ability to operate pursuant to the terms of our debtor-in-possession credit arrangements, our ability to obtain court approvals with respect to motions in the chapter 11 proceedings, our ability to obtain financing that will permit us to exit chapter 11, and our ability to develop, confirm, and consummate a plan of reorganization with respect to the chapter 11 proceedings, may have a material adverse effect on our results of operations and financial position.

~~For~~Our ~~information~~consolidated financial statements have been prepared on a “~~Security~~going ~~Ownership~~concern ofbasis,” ~~Certain~~as ~~Beneficial~~such ~~Owners~~term ~~and~~is ~~Management~~used in U.S. generally accepted accounting principles. A going concern basis contemplates the realization of assets and ~~Related Stockholder~~the ~~Matters~~satisfaction of liabilities in the normal course of business. Our ability to restructure,” ~~please~~refinance, ~~refer~~or repay our indebtedness is subject to ~~Part III~~risks and uncertainties. As a result, ~~Item 12~~there is substantial doubt about our ability to continue to report on a going concern basis. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect these risks and uncertainties.

~~-13-~~ Major Customers

~~Table~~ Our largest customer is General Cable Corporation. During 2008, 2007, and 2006, net sales to General Cable totaled $10,897,000, $9,436,000, and $9,557,000, which represented 14.9%, 10.7%, and 10.9%, respectively, of ~~Contents~~our consolidated net sales and 17.5%, 12.7%, and 12.6%, respectively, of the Rubber Group’s net sales. During 2008, 2007, and 2006, net sales to Delphi Corporation totaled $5,587,000, $8,505,000, and $10,719,000, which represented 7.7%, 9.6%, and 12.2%, respectively, of our consolidated net sales. During 2008, 2007, and 2006, the Rubber Group’s net sales to Delphi totaled $4,603,000, $7,381,000, and $10,719,000, which represented 7.4%, 9.9%, and 14.1%, respectively, of the Rubber Group’s net sales. During 2008 and 2007, the Metals Group’s net sales to Delphi totaled $984,000 and $1,124,000, respectively, which represented 9.2% and 8.1% respectively, of the Metals Group’s net sales. The majority of the products we sell to Delphi are covered by a supply contract that expires on December 31, 2009. No other customer accounted for more than 10% of our consolidated net sales during 2008, 2007, or 2006. Generally, loss of a significant amount of business from any of our large customers could have a material adverse effect on our results of operations and financial condition if that business were not replaced by additional business from existing or new customers. We believe that our reserve for uncollectible accounts receivable is adequate; however, our results of operations and financial condition could be materially adversely affected if any of our large customers experienced financial difficulties that caused them to delay or fail to make payments for goods sold to them.

~~Equity~~Marketing ~~Compensation~~and ~~Plan Information~~ Sales

~~The~~Our ~~following~~marketing ~~table~~and ~~sets~~sales ~~forth~~effort ~~information~~is ~~about~~carried ~~our~~out ~~equity~~by ~~compensation~~management ~~plans~~personnel atand ~~December 31, 2007~~account ~~(share amounts in thousands):~~ managers.

Weighted-average

Shares of common stock

Shares of common stock to

exercise price of

remaining available for

be issued upon exercise

outstanding

future issuance under

of outstanding options,

options,

equity compensation

warrants and rights

plans

Equity compensation plans approved by security holders

—

310

Equity compensation plans not approved by security holders

—

Total

—

310

Raw Materials

Our principal raw materials are silicone and organic rubber compounds and aluminum, brass, steel, and stainless steel bars, forgings, and cold-~~14-~~headed blanks. We generally have had access to adequate amounts of each of our principal raw materials from a number of suppliers. During 2008, 2007, and 2006 price increases and decreases for our principal raw materials did not have a significant effect on our operating results.

~~Table~~- of5 ~~Contents~~-

~~Item 6~~We have generally been successful in passing through to our customers increases in the prices of raw materials, although price increases to our customers have typically lagged behind the price increases from our suppliers. ~~SELECTED~~We ~~FINANCIAL~~attempt ~~DATA~~ to minimize the effect of raw material price increases by seeking other sources of supply, substituting alternative materials, and reformulating compounds.

~~The~~We following table sets forth selected consolidated financial data, including the reconciliation of income or loss from continuing operations to earnings from continuing operations before interest, taxes, depreciation, amortization, and other non-operating items of income or expense (“EBITDA”) and the reconciliation of EBITDA to net cash provided by our operating activities, for each of the years in the five-year period ended December 31, 2007 (dollar amounts in thousands, except per share amounts). The financial data has been derived from our consolidated financial statements, which have ~~been audited by Malin, Bergquist & Company, LLP (2007) and Ernst & Young LLP (2003 through 2006), independent registered public accounting firms. This information is~~ not ~~necessarily~~experienced ~~indicative~~any ofdisruption ~~the results of future operations and should be read~~ in ~~conjunction with,~~our ~~and~~production isas ~~qualified~~a ~~by,~~result ~~“Management’s Discussion and Analysis~~ of ~~Financial~~raw ~~Condition~~material ~~and Results of Operations” in Part II, Item 7, and our consolidated financial statements in Part II, Item 8~~shortages.

	Years Ended December 31
	2007			2006			2005			2004			2003
Summary of operations:
Net sales	$	88,408		$	87,901		$	96,842		$	110,353		$	113,231
Cost of sales		76,529			77,159			87,369			98,304			99,773
Gross profit		11,879			10,742			9,473			12,049			13,458
Selling and administrative expenses		7,204	(1)		6,658			6,747			7,383			7,904
Gain on sale of assets held for sale		—			—			(1,671	)		—			—
Impairment of goodwill		—			—			—			—			47
Income from operations		4,675			4,084			4,397			4,666			5,507
Other income (expense):
Interest expense (2)		(11,339	)(3)		(10,943	)		(9,200	)		(8,662	)		(6,980	)
Gain on repurchase of debt		—			—			77			8,598			—
Income (loss) from continuing operations before income tax		(6,664	)		(6,859	)		(4,726	)		4,602			(1,473	)
Income tax provision (benefit)		6			18			(299	)		(196	)		76
Income (loss) from continuing operations		(6,670	)		(6,877	)		(4,427	)		4,798			(1,549	)
Income (loss) from discontinued operations		(289	)		(472	)		644			(3,208	)		(4,653	)
Cumulative effect of change in accounting principle		—			—			—			—			(247	)
Net income (loss)	$	(6,959	)	$	(7,349	)	$	(3,783	)	$	1,590		$	(6,449	)
Net income (loss) per diluted common share	$	(1.41	)	$	(1.49	)	$	(0.77	)	$	0.32		$	(1.36	)

Patents and Trademarks

~~(continued~~We ondo ~~next~~not ~~page)~~ currently hold any patents, trademarks, or licenses that we consider to be material to the successful operation of our business.

~~-15-~~ Seasonal Variations

~~Table~~Our business generally is not subject to significant seasonal variation; however, we generally experience decreased sales during the third calendar quarter of ~~Contents~~each year due to shutdowns of our customers’ plants in July as a result of vacations and model-year changeovers and during the fourth calendar quarter of each year due to shutdowns of our customers’ plants for vacations and holidays in December.

~~(continued from prior page)~~ Backlog

	Years Ended December 31
	2007			2006			2005			2004			2003
Other data (continuing operations):
Reconciliation of income (loss) from continuing operations to EBITDA from continuing operations:
Income (loss) from continuing operations	$	(6,670	)	$	(6,877	)	$	(4,427	)	$	4,798		$	(1,549	)
Adjustments:
Depreciation and amortization included in income from continuing operations		6,437			7,295			8,374			8,444			8,955
Gain on repurchase of debt		—			—			(77	)		(8,598	)		—
Interest expense		11,339			10,943			9,200			8,662			6,980
Income tax provision (benefit)		6			18			(299	)		(196	)		76
EBITDA from continuing operations (4)		11,112			11,379			12,771			13,110			14,462
Adjustments to reconcile EBITDA to net cash provided by operating activities:
Interest expense		(11,339	)		(10,943	)		(9,200	)		(8,662	)		(6,980	)
Amortization and write-off of deferred financing expenses included in interest expense		1,249			3,078			1,315			1,098			610
Interest expense converted to debt		—			—			—			—			3,953
Impairment of goodwill		—			—			—			—			47
Income tax (provision) benefit		(6	)		(18	)		299			196			(76	)
Gain on sale of assets held for sale		—			—			(1,671	)		—			—
Net change in operating assets and liabilities		4,420			(940	)		3,628			1,326			1,454
Net cash provided by operating activities	$	5,436		$	2,556		$	7,142		$	7,068		$	13,470
Net cash provided (used) by investing activities	$	(2,741	)	$	(2,628	)	$	683		$	(6,085	)	$	(4,778	)
Net cash provided (used) by financing activities	$	(2,333	)	$	621		$	(11,212	)	$	(580	)	$	(7,830	)
Capital expenditures (5)	$	2,664		$	2,661		$	3,330		$	6,057		$	5,686

Sales of our products are made pursuant to a variety of arrangements and practices. Our customers regularly revise release schedules to correspond to their own production requirements. We believe that the aggregate value of scheduled releases outstanding on our books at any time cannot be considered firm backlog because those releases may be revised at any time. We also believe that increases or decreases in the aggregate value of scheduled releases are not necessarily indicative of any trend in our net sales.

	December 31
	2007			2006			2005			2004			2003
Financial position (6):
Current assets	$	21,877		$	20,222		$	22,396		$	28,907		$	30,101
Current liabilities		87,771			82,211			41,092			35,777			37,687
Net working capital deficit	$	(65,894	)	$	(61,989	)	$	(18,696	)	$	(6,870	)	$	(7,586	)
Total assets	$	52,367		$	54,440		$	62,343		$	78,377		$	83,687
Long-term debt, excluding current portion	$	5		$	406		$	41,545		$	58,949		$	63,681
Total stockholders’ deficit	$	(35,941	)	$	(28,991	)	$	(21,656	)	$	(17,875	)	$	(19,492	)

Competition

~~(footnotes~~The markets in which we compete are characterized by intense price competition and increasing customer requirements for quality and service. We compete for business primarily on ~~next~~the ~~page)~~ basis of quality, service, engineering capability, and price. We encounter substantial competition from a large number of domestic and foreign-based manufacturing companies. Our competitors range from small and medium-sized specialized firms to large diversified companies, many of which have resources substantially greater than ours. Additionally, some of our customers have internal manufacturing operations that compete with us.

~~-16-~~ Research and Development

~~Table~~ During 2008, 2007, and 2006, we spent approximately $661,000, $915,000, and $1,093,000, respectively, on our research and development activities, which are primarily related to improving our manufacturing processes in order to reduce the cost and increase the quality of ~~Contents~~our products.

~~(footnotes~~Environmental ~~for the table on prior pages)~~ Compliance

(1)		Selling and administrative expenses for 2007 include $698,000 of expenses incurred in connection with the Company’s efforts to refinance or restructure its indebtedness.
(2)		Includes the amortization and write-off of deferred financing expenses of $1,249,000, $3,078,000, $1,315,000, $1,098,000, and $610,000 in 2007, 2006, 2005, 2004, and 2003, respectively.
(3)		Interest expense for 2007 includes $698,000 of default interest expense on our secured debt, $1,279,000 of forbearance interest expense on our Senior Subordinated Notes, and $390,000 of interest on the interest payments that we failed to make on the Senior Subordinated Notes in 2006 and 2007.
(4)		EBITDA is not a measure of performance under U.S. generally accepted accounting principles (“GAAP”) and should not be considered in isolation or used as a substitute for income from operations, net income, net cash provided by operating activities, or other operating or cash flow statement data prepared in accordance with GAAP. For more information on the use of EBITDA as a financial measure, please refer to our discussion of EDITDA in “Results of Operations — Comparison of 2007, 2006, and 2005” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7.
(5)		Includes $28,000 of equipment purchased under capital leases in 2007. Includes $157,000 of equipment acquired with seller-provided financing in 2006.
(6)		Data includes assets and liabilities of discontinued operations.

Our operations are subject to numerous laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment. Although we make expenditures relating to the protection of the environment, compliance with environmental laws and regulations has not had a significant impact on our capital spending requirements, earnings, or

-17 6 -

~~Table~~ competitive position. We cannot assure you that changes in environmental laws and regulations, or in the interpretation or enforcement of ~~Contents~~those laws and regulations, will not require material expenditures in the future.

~~Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~ Employees

~~Overview~~ We believe that our employee relations are generally good. The following table shows the number of employees at December 31, 2008, 2007, and 2006.

Some of our statements in this Form 10-K are “forward-looking statements.” Forward-looking statements usually can be identified by our use of words like “believes,” “expects,” “may,” “will,” “should,” “anticipates,” “estimates,” “projects,” or the negative thereof. They may be used when we discuss strategy, which typically involves risk and uncertainty, and they generally are based upon projections and estimates rather than historical facts and events.

	December 31
	2008		2007		2006
Rubber Group		408		538		594
Metals Group		68		121		104
Corporate Office		6		7		8
		482		666		706

~~Forward-looking~~At ~~statements~~December ~~are~~31, 2008, 2007, and 2006, employees at the Rubber Group included 151, 224, and 277 hourly workers at two plant locations that were subject to acollective ~~number~~bargaining ofagreements, ~~risks~~which expire on October 19, 2009, and ~~uncertainties~~March ~~that~~11, ~~could~~2009. ~~cause our~~We ~~actual~~have ~~results~~commenced orthe ~~performance~~process of terminating all operations at the manufacturing facility subject to bethe ~~materially~~agreement ~~different~~that ~~from~~expired on March 11, 2009, and we anticipate that we will complete the ~~future~~closing ~~results~~of orthis ~~performance expressed~~facility, inwhich oras ~~implied~~of byDecember ~~those~~31, ~~statements~~2008, had 54 hourly workers, during the second quarter of 2009. ~~Some~~For more information on the shutdown of ~~those~~this ~~risks~~manufacturing facility please refer to “Management’s Discussion and ~~uncertainties~~Analysis ~~are:~~ of Financial Condition and Results of Operations” in Part II, Item 7 and to Note 16, “Subsequent Event,” in the notes to our consolidated financial statements in Part II, Item 8.

•Discontinued our ability to operate pursuant to the terms of our debtor-in-possession credit arrangements; • our ability to obtain court approval with respect to motions in the chapter 11 proceedings; • our ability to develop, confirm, and consummate a plan of reorganization with respect to the chapter 11 proceedings; • increases and decreases in business awarded to us by our customers; • unanticipated price reductions for our products as a result of competition; • changes in the cost of raw materials; • strength or weakness in the North American automotive market; • changes in the competitive environment; • unanticipated operating results; • changes in economic conditions; • changes in interest rates; • financial difficulties encountered by our customers or suppliers; • the filing of chapter 11 by one or more of our customers or suppliers; • labor interruptions at our facilities or at our customers’ or suppliers’ facilities; • our ability to develop adequate policies regarding and testing of internal control over financial reporting; and • other risks and uncertainties regarding the Company and its industry identified from time to time in the Company’s reports filed with the Securities and Exchange Commission, including the risk factors identified in its annual report on Form 10-K for the year ended December 31,Operations

During 2005, we sold or liquidated all of the assets of our diecasting business except its land and buildings. In this Form 10-18K, the diecasting business is reported as discontinued operations. For more information about the closing of the die casting business, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, and to Note 14, “Discontinued Operations,” in the notes to our consolidated financial statements in Part II, Item 8. Unless otherwise indicated, the data set forth in this Form 10- K relate solely to our continuing operations.

~~Table~~Filings ofwith ~~Contents~~the Securities and Exchange Commission

~~2006,~~ We ~~and~~do innot ~~its~~make available through a website our annual report on Form 10-K, our quarterly reports on Form 10-Q, ~~for~~our ~~the~~current ~~quarters~~reports ~~ended~~on ~~March~~Form 318-K, ~~June~~or 30any amendments to those reports. We will furnish free of charge, ~~and~~upon ~~September~~written request 30to our President at 800 Third Avenue, ~~2007~~15th Floor, New York, NY 10022, a paper copy of the reports that we file with the Securities and Exchange Commission. The reports have been filed electronically with the Commission and are accessible on the Commission’s website at www.sec.gov.

~~Our results of operations for any particular period are not necessarily indicative of the results to be expected for any succeeding period. The use of forward~~-~~looking~~ ~~statements~~7 ~~should not be regarded as a representation that any of the projections or estimates expressed in or implied by those forward~~-looking statements will be realized, and actual results may vary materially. We cannot assure you that any of the forward-looking statements contained herein will prove to be accurate. All forward-looking statements are expressly qualified by the discussion above.

~~Because~~Item we1A. ~~have~~RISK substantial borrowings for a company our size and because those borrowings require us to make substantial interest and principal payments, any negative event may have a greater adverse effect upon us than it would have upon a company of the same size that has less debt. FACTORS

~~For~~We ~~additional~~are ~~discussion~~subject ~~about~~to risks ~~and~~associated ~~uncertainties~~with ~~that~~bankruptcy ~~may affect our business, please refer to “Risk Factors” in Part I, Item 1A~~proceedings.

~~Results~~On ofApril ~~Operations~~1, —2008, ~~Comparison~~the Company filed a voluntary petition for relief under chapter 11 of ~~2007,~~the ~~2006,~~United ~~and~~States ~~2005~~ Bankruptcy Code.

~~Unless~~Although ~~otherwise~~we ~~indicated~~cannot assure you that we will be successful, our intent in filing for chapter 11 protection was to use the ~~data~~powers ~~set~~afforded ~~forth~~us ~~below~~under the Bankruptcy Code to effect a financial restructuring that would result in ~~this~~a ~~Item 7~~significant ~~relate~~reduction ~~solely~~in our total indebtedness on a basis that would be fair and equitable to all of our ~~continuing~~ ~~operations~~creditors and stockholders. On June 30, 2008, we filed with the Bankruptcy Court a plan of reorganization. On August 8, 2008, we filed an amended plan of reorganization, which was further amended in December 2008 (the “Amended Plan”). On December 8, 2008, the Amended Plan and a proposed disclosure statement with respect to the Amended Plan were filed with the Bankruptcy Court. Although we currently plan to complete the consolidation of the connector-seal business prior to seeking approval of the Amended Plan, if the Amended Plan becomes effective without further amendment, the following distributions would be made:

The following table sets forth our consolidated operating results for 2007, 2006, and 2005, the reconciliation of the loss from continuing operations to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for those periods, and the reconciliation of EBITDA to net cash used by our operating activities for those periods. EBITDA is not a measure of performance under U.S. generally accepted accounting principles (“GAAP”) and should not be considered in isolation or used as a substitute for income from operations, net income, net cash provided by operating activities, or other operating or cash flow statement data prepared in accordance with GAAP. We have presented EBITDA here and elsewhere in this Form 10-K because (a) we believe that this measure enhances the ability of our investors to evaluate our ability to satisfy our interest and principal obligations with respect to our outstanding indebtedness, (b) management uses EBITDA as a supplemental measure to evaluate the operating performance of our business and believes that it provides a useful measure for comparing period to period performance among our business units because it does not include period to period fluctuations in taxes, interest costs, costs associated with capital investments, and other non-operating items, and (c) because certain financial covenants in our secured credit agreements are calculated using variations of EBITDA. Nevertheless, EBITDA has material limitations when used as a measurement of performance, including the following: —

1.The ~~EBITDA excludes interest expense. Cash interest payments represent a reduction in cash available to us~~senior, ~~and~~secured ~~accruals~~credit ~~for~~facility ~~interest~~would ~~expense~~be ~~represent~~repaid ~~an obligation to pay cash interest~~ in ~~the~~full ~~future. 2. EBITDA excludes provisions for taxes. Cash payments of taxes represent a reduction~~ in cash available to us, and accruals for non-cash taxes represent an obligation to pay cash taxes in the future. 3. EBITDA excludes depreciation and amortization related to buildings, equipment, and tooling. Although depreciation and amortization are non-cash charges, they represent the using up, over a projected period, of assets that produce revenue. EBITDA does not reflect the capital expenditures required for the replacement of these depreciated assets.;

~~-19-~~ —

~~Table~~Each holder of ~~Contents~~a general unsecured claim, other than holders of Senior Subordinated Notes and the Junior Subordinated Note, would receive an initial cash payment equal to 10% of their claim and nine additional cash payments, each equal to 10.75% of their claim, payable quarterly, commencing three months after the effective date of the Amended Plan;

	4.		EBITDA does not reflect cash provided or used as a result of changes in our working capital.
	5.		Our definition of EBITDA may not be the same as the definition of EBITDA used by other companies, including companies in our industry; as the number of differences in the definition of EBITDA increases, the usefulness of EBITDA as a comparative measure decreases. The definition of EBITDA used here is different from the definition of EBITDA used to calculate compliance with the financial covenants in our secured loan agreements.

—

ToEach ~~compensate~~holder ~~for the shortcomings~~ of ~~EBITDA as~~ a ~~financial~~Senior ~~measure,~~Subordinated itNote isclaim ~~important~~would toreceive ~~use financial~~shares ~~data~~of ~~derived~~new ~~under~~Series ~~GAAP.~~C InPreferred ~~particular,~~Stock wewith ~~monitor~~an ~~gross~~aggregate ~~profit~~liquidation ~~and~~preference ~~operating~~equal ~~profit~~to ~~in dollars~~their ~~and as a percentage of net sales and net cash provided by operating activities. In addition~~claim, ~~when~~increasing ~~setting~~at ~~prices~~the ~~for~~rate ~~components~~of ~~that~~6% weper ~~manufacture~~annum, weand ~~use~~convertible ainto ~~cost~~common ~~system~~stock ~~that calculates~~at ~~the~~$4.46 ~~gross~~per ~~profit~~share; ~~margin~~and ~~of each component.~~

~~-20-~~ —

~~Table~~Each holder of ~~Contents~~a Junior Subordinated Note claim and a Series B Preferred Stock interest would receive new shares of common stock with a value equal to their claim or interest.

~~Also~~If ~~included~~the inAmended Plan had become effective on December 31, 2008, $48,407,000 of our liabilities would have been converted into equity securities. This would substantially dilute the ~~table~~ownership ~~are~~percentage of the ~~net~~holders ~~cash~~of ~~flows~~our ~~provided~~currently oroutstanding ~~used~~common bystock. ~~our~~For ~~investing~~a ~~activities~~ detailed description of the Amended Plan, the classification and ~~financing~~treatment ~~activities~~of claims and interests, and the proposed terms of the Series C Preferred Stock, please refer to the proposed disclosure statement filed with the Bankruptcy Court on December 8, 2008. ~~(Dollar~~The ~~amounts~~proposed indisclosure ~~thousands~~statement along with other documents related to the chapter 11 proceedings can be found at http://chapter11.) epiqsystems.com/lexington.

	Years Ended December 31
	2007					2006					2005
Net sales	$	88,408		100.0	%	$	87,901		100.0	%	$	96,842		100.0	%
Cost of sales		76,529		86.6			77,159		87.8			87,369		90.2
Gross profit		11,879		13.4			10,742		12.2			9,473		9.8
Selling and administrative expenses		7,204		8.1			6,658		7.6			6,747		7.0
Gain on sale of assets held for sale		—		—			—		—			1,671		1.7
Income from operations		4,675		5.3			4,084		4.6			4,397		4.5
Interest expense		(11,339	)	(12.8	)		(10,943	)	(12.4	)		(9,200	)	(9.5	)
Gain on repurchase of debt		—		—			—		—			77		0.1
Loss before income taxes		(6,664	)	(7.5	)		(6,859	)	(7.8	)		(4,726	)	(4.9	)
Income tax provision (benefit)		6		—			18		—			(299	)	(0.3	)
Loss from continuing operations		(6,670	)	(7.5	)		(6,877	)	(7.8	)		(4,427	)	(4.6	)
Add back:
Depreciation and amortization (1)		6,437		7.3			7,295		8.3			8,374		8.7
Gain on repurchase of debt		—		—			—		—			(77	)	(0.1	)
Interest expense		11,339		12.8			10,943		12.4			9,200		9.5
Income tax provision (benefit)		6		—			18		—			(299	)	(0.3	)
EBITDA		11,112		12.6			11,379		12.9			12,771		13.2
Adjustments to reconcile EBITDA to net cash provided by operating activities:
Interest expense		(11,339	)	(12.8	)		(10,943	)	(12.4	)		(9,200	)	(9.5	)
Amortization and write-off of deferred financing expenses included in interest expense		1,249		1.4			3,078		3.5			1,315		1.4
Income tax (provision) benefit		(6	)	—			(18	)	—			299		0.3
Gain on sale of assets held for sale		—		—			—		—			(1,671	)	(1.7	)
Net change in operating assets and liabilities		4,420		5.0			(940	)	(1.1	)		3,628		3.7
Net cash provided by operating activities	$	5,436		6.1	%	$	2,556		2.9	%	$	7,142		7.4	%
Net cash provided (used) by investing activities	$	(2,741	)	(3.1	)%	$	(2,628	)	3.0	%	$	683		0.7	%
Net cash provided (used) by financing activities	$	(2,333	)	(2.6	)%	$	621		0.7	%	$	(11,212	)	(11.6	)%

~~(footnote~~ Our consolidated financial statements have been presented on ~~following~~a ~~page)~~“going concern basis,” as such term is used in U.S. generally accepted accounting principles. A going concern basis contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to reorganize the Company is subject to risks and uncertainties. The consolidated financial statements do not

-21 8 -

~~Table~~ include any adjustments to the amounts or classification of ~~Contents~~assets or liabilities to reflect these risks and uncertainties.

~~(footnote~~We ~~for~~are ~~table~~dependent on ~~prior~~a ~~page)~~ few major customers.

~~(1)~~In ~~Does~~2008, ~~not~~the ~~include~~three largest customers of the ~~amortization~~Rubber ~~and~~Group ~~write-off~~accounted for 36.9% of ~~deferred~~the ~~financing~~Rubber ~~expenses~~Group’s net sales, ~~which~~and ~~totaled~~the ~~$1,249,000,~~three $largest customers of the Metals Group accounted for 48.3~~,078,000,~~% ~~and~~of ~~$1,315,000,~~the inMetals ~~2007,~~Group’s ~~2006~~net sales. Generally, loss of a significant amount of business from any of our large customers would have a material adverse effect on our results of operations and ~~2005,~~financial ~~respectively~~condition if such business were not substantially replaced by additional business from existing or new customers. Additionally, our results of operations and ~~which~~financial iscondition ~~included~~could inbe ~~interest~~materially ~~expense~~adversely inaffected ~~the~~if ~~consolidated~~any of our large customers experienced financial ~~statements~~difficulties that caused them to delay, or fail to make, payments for goods sold to them.

~~The~~We ~~following~~are ~~table~~dependent ~~presents~~on athe ~~summary~~automotive oforiginal ~~our~~equipment ~~net sales by type of product in which our components are utilized (dollar amounts in thousands):~~ industry.

	Years Ended December 31
	2007				2006				2005
Automotive	$	69,430	78.5	%	$	73,464	83.6	%	$	83,577	86.3	%
Medical		15,928	18.0			11,039	12.6			9,989	10.3
Industrial		1,549	1.8			1,623	1.8			1,429	1.5
Other		1,501	1.7			1,775	2.0			1,847	1.9
Total net sales	$	88,408	100.0	%	$	87,901	100.0	%	$	96,842	100.0	%

Net sales to customers that supply systems to manufacturers of new cars and trucks represented 36.7%, 48.5%, and 50.8% of our consolidated net sales in 2008, 2007, and 2006, respectively. Sales to these customers are in part tied to the rate of sales of new vehicles. The unexpected, sharp decline in the sales of new cars and trucks that started during the second half of 2008 and the first quarter of 2009 has adversely affected our results of operations and financial condition. To mitigate the impact of the sharp decline in new car and truck sales, during the first quarter of 2009, we decided to close our connector-seal manufacturing facility, in Vienna, Ohio, because we do not believe that it will be possible to return this facility to an adequate level of profitability in the foreseeable future. We are transferring the production of connector seals to our other rubber molding facilities. We currently anticipate that the restructuring of our connector-seal business will be substantially completed by June 30, 2009, and that the cost to restructure the connector-seal business will be approximately $1,082,000, which we expect to incur during the second and third quarters of 2009. Compared to 2008, we currently project that the restructuring of our connector-seal business will increase the EBITDA of our connector-seal business by approximately $2,500,000 in 2010.

~~Our~~We ~~net~~encounter ~~sales~~significant ~~for 2007 were $88,408,000, compared to net sales of $87,901,000 for 2006, an increase of $507,000, or 0~~competition.6%. The increase in net sales was principally a result of increased unit sales of metal components and of rubber components used in medical devices, offset, by decreased unit sales of rubber components for the automotive industry. EBITDA for 2007 was $11,112,000, or 12.6% of net sales, compared to EBITDA of $11,379,000, or 12.9% of net sales, for 2006. The change in EBITDA reflected a $915,000 increase in EBITDA at the Metals Group, a $395,000 decrease in EBITDA at the Rubber Group, and a $787,000 decrease in EBITDA at the Corporate Office.

~~During~~ The ~~2006,~~markets ~~our~~in ~~net~~which ~~sales~~we ~~decreased~~compete ~~$8,941,000,~~are orcharacterized ~~9.2%,~~by ~~compared~~intense toprice ~~2005. The decrease in~~competition ~~net~~and ~~sales~~increasing ~~was~~customer ~~principally~~requirements afor ~~result~~quality ofand ~~decreased~~service. ~~unit~~We ~~sales~~compete offor business ~~rubber~~primarily ~~components~~on ~~for~~ the ~~automotive industry~~basis of quality, ~~offset~~service, inengineering ~~part~~capability, byand price. ~~increased~~We ~~unit~~encounter ~~sales~~substantial ofcompetition ~~metal~~from ~~components~~a ~~and~~large ofnumber ~~rubber components~~of ~~used~~domestic ~~in medical devices,~~ and ~~price~~foreign-based ~~increases~~manufacturing ~~on selected products~~companies. ~~EBITDA~~Our ~~for~~competitors ~~2006~~range ~~was $11,379,000,~~from orsmall ~~12.9%~~and ofmedium-sized ~~net~~specialized ~~sales,~~firms ~~compared~~ to ~~EBITDA~~large ofdiversified ~~$12~~companies,~~771,000,~~ ormany ~~13.2%~~ of ~~net sales, for 2005. The~~ ~~change~~which inhave ~~EBITDA~~resources ~~reflected~~substantially agreater ~~$163,000~~than ~~decrease~~ours. ~~in EBITDA at the Rubber Group~~Additionally, asome ~~$1,248,000~~of ~~decrease~~our incustomers ~~EBITDA~~have atinternal ~~the~~manufacturing ~~Metals~~operations ~~Group,~~that ~~and~~compete awith ~~$19,000 increase in EBITDA at the Corporate Office~~us.

~~The~~A ~~discussion~~lack ~~that follows sets forth our analysis~~ of ~~the~~effective ~~operating~~internal ~~results~~control ofover ~~the~~financial ~~Rubber Group,~~reporting ~~the~~may ~~Metals~~result ~~Group,~~in ~~and~~an ~~the~~inability ~~Corporate~~to ~~Office~~accurately ~~for~~report ~~2007,~~our ~~2006,~~financial ~~and 2005~~results.

~~-22-~~ In connection with management's evaluation of our internal control over financial reporting, management identified significant deficiencies that, in the aggregate, constitute a material weakness. Our management concluded that we have incomplete documentation of the internal control system, we lack a procedure for documenting certain internal control activities, interdivisional internal control duties are not completely segregated, and we have been unable to test the operational effectiveness of our internal control over financial reporting. A failure to implement and maintain effective internal control over financial reporting could result in a material misstatement of our financial statements or otherwise cause

~~Table~~- of9 ~~Contents~~-

~~Rubber~~ us ~~Group~~to fail to meet our financial reporting obligations. For more information on our internal controls over financial reporting, please refer to “Controls and Procedures” in Part II, Item 9A(T).

~~The~~We ~~Rubber~~may ~~Group~~not ~~manufactures~~be ~~tight-tolerance~~able ~~rubber~~to ~~components.~~remediate ~~The~~the ~~Rubber~~material ~~Group’s~~weakness ~~primary products are connector seals used~~ in ~~automotive~~our ~~wiring~~internal ~~systems,~~control ~~insulators~~over ~~used~~financial in both original equipment and aftermarket automotive ignition-wire sets, and molded rubber components used in a variety of medical devices, such as intravenous feeding systems, syringes, and surgical equipmentreporting.

~~The~~Although ~~following~~its ~~table~~is ~~sets~~our ~~forth~~intention to remediate the ~~operating~~material ~~results~~weakness in our internal control over financial reporting, on April 1, 2008, we filed a voluntary petition for relief under chapter 11 of the ~~Rubber~~United ~~Group~~States ~~for~~Bankruptcy ~~2007~~Code. Because of the additional demands placed on our limited number of accounting professionals due to the bankruptcy filing and the substantial financial resources required to remediate the deficiencies noted above, ~~2006~~we may not be able to remediate these weaknesses prior to the initial audit of our internal control over financial reporting by a registered public accounting firm. If we are unable to remediate the weaknesses prior to this audit, ~~and 2005~~we will encounter difficulties in the audit of our internal controls by our outside independent auditors, which may have an adverse effect on our ability to prepare financial statements in accordance with U.S. generally accepted accounting principles and to comply with the reporting ~~reconciliation~~requirements of the ~~Rubber~~Securities ~~Group’s~~and ~~income~~Exchange ~~from~~Commission. ~~operations~~For more information on our internal controls over financial reporting, please refer to ~~its~~“Controls ~~EBITDA~~and ~~(dollar amounts~~Procedures” in ~~thousands~~Part II, Item 9A(T): .

	Years Ended December 31
	2007				2006				2005
Net sales	$	74,587	100.0	%	$	76,090	100.0	%	$	84,884	100.0	%
Cost of sales		63,039	84.5			64,772	85.1			74,719	88.0
Gross profit		11,548	15.5			11,318	14.9			10,165	12.0
Selling and administrative expenses		3,573	4.8			3,676	4.9			3,702	4.4
Gain on sale of assets held for sale		—	—			—	—			571	0.7
Income from operations		7,975	10.7			7,642	10.0			7,034	8.3
Add back: depreciation and amortization		5,727	7.7			6,455	8.5			7,226	8.5
EBITDA	$	13,702	18.4	%	$	14,097	18.5	%	$	14,260	16.8	%

Part of our labor force is unionized.

~~During~~At ~~2007~~December 31, ~~total~~2008, ~~net~~employees ~~sales~~at of the Rubber Group ~~decreased~~included by151 ~~$1,503,000,~~workers orat ~~2%,~~two ~~compared~~plant ~~to 2006.~~locations ~~Net~~that ~~sales~~were subject to ~~automotive~~collective ~~customers~~bargaining ~~decreased~~agreements, bywhich $6expire on October 19,~~141~~ 2009,~~000,~~ orand ~~9.6%~~March 11, 2009. We have commenced the process of terminating all operations at the manufacturing facility subject to ~~$57~~the agreement that expired on March 11,~~833~~ 2009,~~000,~~ ~~net~~and ~~sales to~~we ~~medical~~anticipate ~~device~~that ~~manufacturers~~we ~~increased~~will bycomplete $4the closing of this facility,~~889~~ which as of December 31,~~000~~ 2008, orhad ~~44.3%~~54 hourly workers, during the second quarter of 2009. For more information on the shutdown of this manufacturing facility please refer to ~~$15,928,000,~~“Management’s Discussion and ~~all~~Analysis ~~other net~~of ~~sales~~Financial ~~decreased~~Condition byand ~~$251~~Results of Operations” in Part II,~~000~~ Item 7 and to Note 16, or“Subsequent ~~23.3%~~Event,” in the notes to ~~$826~~our consolidated financial statements in Part II,~~000~~ Item 8. ~~The~~We ~~three~~cannot ~~largest~~assure ~~customers~~you ofthat ~~the~~our ~~Rubber Group~~remaining ~~accounted~~union ~~for~~contract ~~30.5%,~~will ~~36.5%,~~be ~~and~~successfully 42renegotiated when it expires.9% Negotiations ofhave not commenced regarding the ~~Rubber~~extension ~~Group’s~~of ~~net~~this ~~sales~~agreement. ~~during~~If ~~2007,~~we ~~2006~~were to experience a strike or work slowdown, it could have a material adverse effect on our results of operations and ~~2005,~~ ~~respectively~~financial condition.

~~The~~Our ~~increase~~customers inmay ~~net~~be ~~sales~~subject ~~of medical components was primarily due~~ to ~~the~~labor ~~sale of components to a medical device manufacturer that began purchasing production parts from us in January of 2007~~interruptions.

~~The~~ Many ~~decrease~~of inour ~~net sales to automotive~~ customers ~~was~~and ~~primarily~~the ~~due~~three toDetroit-based ~~decreased~~automobile ~~unit sales to original equipment~~ manufacturers ofhave ~~connector~~union ~~seals~~contracts ~~for~~with ~~automotive~~various ~~wire~~unions. ~~harnesses,~~Protracted ~~components~~strikes ~~for use~~or inwork ~~automotive~~slowdowns ~~computer~~at ~~control~~our ~~modules,~~customers ~~and~~or ~~insulators~~at ~~for~~any ~~automotive~~of ~~ignition-wire~~the ~~sets, which we believe resulted primarily from production cutbacks by~~ Detroit-based ~~automakers,~~automobile ~~and decreased unit sales of insulators to~~ manufacturers ofcould ~~aftermarket~~have ~~automotive~~a ~~ignition-wire~~material ~~sets~~adverse ~~primarily due~~effect toon ~~the~~our ~~decision~~results of aoperations ~~large~~and ~~customer~~financial ~~to reduce their on-hand inventory~~condition.

~~Cost~~We ofare ~~sales~~vulnerable ~~as a percentage of net sales decreased~~ to ~~84.5%~~fluctuations ofin ~~net~~the ~~sales~~cost ~~during~~and ~~2007, compared~~supply ~~to 85.1%~~ of ~~net~~raw ~~sales during 2006, primarily due to improved product mix, lower depreciation and amortization expense, and lower employee benefit expenses~~materials.

~~-23-~~ We purchase raw materials from various suppliers. While all of our raw materials are available from a number of suppliers, commodity raw materials are subject to fluctuations in price. Because raw materials in the aggregate constitute approximately 37% of our cost of goods sold, upward movement of raw material prices could have a material adverse effect on our results of operations. We have generally been successful in passing through to our customers increases in the prices of raw materials, although price increases to our customers have typically lagged behind the price increases from our suppliers. We attempt to minimize the effect of raw material price increases by seeking other sources of supply, substituting alternative materials, and reformulating compounds.

~~Table~~- of10 ~~Contents~~-

~~Selling~~We ~~and~~have ~~administrative~~not ~~expenses~~experienced ofany ~~the~~disruption ~~Rubber~~in ~~Group~~our ~~expressed~~production as a ~~percentage~~result of ~~net~~raw ~~sales decreased~~material toshortages, ~~4.8%~~but, ofif ~~net~~any ~~sales~~such ~~during~~shortage ~~2007~~were to occur, ~~compared~~it tocould ~~4.9%~~have ~~during~~a ~~2006,~~material ~~primarily~~adverse ~~because~~effect ~~of reduced~~on ~~employee~~our ~~wage~~results of operations and ~~benefit~~financial ~~expenses~~condition.

~~During~~We ~~2007,~~are ~~income~~subject ~~from operations totaled $7,975,000, an increase of $333,000, or 4.4%, compared~~ to ~~2006.~~numerous ~~EBITDA~~environmental ~~for~~laws ~~2007~~and ~~was $13,702,000, or 18~~regulations.~~4% of net sales, compared to $14,097,000, or 18.5% of net sales, for 2006.~~

~~During~~Our ~~2006,~~past ~~net~~and ~~sales~~present business operations and our ownership and operation of real property are subject to extensive and changing environmental laws and regulations pertaining to the ~~Rubber~~discharge ~~Group~~of ~~decreased~~materials byinto $8the environment,~~794~~ the handling and disposal of wastes,~~000~~ including hazardous wastes, and the protection of the environment. Some of our existing and former locations use and have used substances and generate or 10have generated or disposed of wastes that are or may be considered hazardous or otherwise are subject to applicable environmental requirements.4% In addition, ~~compared~~we ~~to 2005~~utilize storage tanks and bulk containers for petrochemicals and other substances at our facilities. ~~Net~~Based ~~sales~~on our experience to ~~automotive~~date, ~~customers~~we ~~decreased~~do bynot ~~$9,747,000,~~expect environmental claims or ~~13.2%,~~the tocosts ~~$63~~of compliance with federal,~~974~~ state,~~000~~ and local, ~~net sales~~environmental laws and regulations to ~~medical~~have ~~device~~a ~~manufacturers~~material ~~increased~~impact byon $1our capital expenditures,~~050~~ operating results,~~000,~~ or 10financial condition.~~5%,~~ toWe cannot ~~$11~~assure you,~~039~~ however,~~000,~~ ~~and~~that ~~all other~~the ~~net~~discovery ~~sales~~of ~~decreased~~presently byunknown ~~$97~~environmental conditions,~~000,~~ changes in environmental laws and regulations or ~~8.3%~~their interpretation, or other unanticipated events will not give rise to ~~$1,077,000~~expenditures or liabilities that may have a material adverse effect on our results of operations and financial condition.

~~The~~We ~~decrease~~may inbe ~~net~~subject ~~sales~~ to automotive customers was primarily due to (1) the in-sourcing by Delphi Corporation of certain connector seals that were previously manufactured by us, (2) the resourcing by Delphi during the fourth quarter of 2005 of two high-volume components unrelated to our connector seal business as a result of price increases instituted by us, (3) decreased unit sales of connector seals for automotive wire harnesses, which we believe resulted primarily from market share losses and third and fourth quarter production cutbacks by Detroit-based automakers, (4) reduced unit sales to original equipment manufacturers of insulators for automotive ignition-wire sets due to the end of the product ~~life-cycle~~liability ofclaims ~~certain components, the loss of certain business by one of our customers,~~ and third and fourth quarter production cutbacks by Detroit-based automakers, (5) reduced unit sales of insulators to manufacturers of aftermarket automotive ignition-wire sets primarily due to the loss of business by one of our customers, and (6) price reductions on certain componentslitigation. The factors reducing sales were partially offset by price increases on certain components. During 2006, the Rubber Group’s net sales to Delphi totaled $10,719,000, a decrease of $6,707,000, or 38.5%, compared to net sales of $17,426,000 during 2005.

~~Cost~~Our ofbusiness ~~sales~~exposes asus ato ~~percentage~~potential product liability. Many of ~~net~~the ~~sales~~components ~~decreased~~manufactured and sold by us are designed to ~~85.1%~~be used for long periods of ~~net~~time. ~~sales~~Component ~~during~~failures, ~~2006~~manufacturing flaws, ~~compared~~ todesign ~~88%~~defects, ofor ~~net~~inadequate ~~sales~~disclosure ~~during~~of ~~2005,~~product-related ~~primarily~~risks ~~due~~with respect to ~~(1) the~~our ~~closing~~components ~~and~~or ~~sale,~~the ~~during~~products ~~2005, of~~in ~~our~~which ~~unprofitable~~they ~~manufacturing~~are ~~facility~~incorporated could result in ~~LaGrange~~product failure or an unsafe condition or injury to, ~~Georgia~~or death of, ~~and~~consumers. ~~the~~The ~~consolidation~~occurrence of ~~our connector~~such ~~seal~~a ~~production~~problem could result in ~~Vienna,~~product ~~Ohio,~~liability ~~(2) price~~claims ~~increases~~or ona ~~certain~~recall of, or safety alert relating to, our components, ~~(3) reduced~~or ~~expenses~~the ~~related~~products in which they are incorporated. We cannot assure you that the product liability insurance maintained by us would be available or sufficient to ~~scrap,~~satisfy ~~(4) reduced~~all ~~consulting~~claims ~~fees,~~against ~~(5) lower~~us ~~depreciation~~or ~~and amortization~~that ~~expense,~~we ~~and~~will ~~(6) a~~be ~~reduction~~able to obtain insurance in the ~~operating~~future ~~loss~~ at ~~our~~satisfactory ~~captive~~rates, ~~tool~~in ~~making facility~~adequate amounts, or at all. ~~The~~Future ~~factors~~product ~~reducing~~liability ~~cost~~claims, regardless of ~~sales~~their asultimate outcome, or product recalls could result in costly litigation and could have a ~~percentage~~material adverse effect on our results of ~~net~~operations ~~sales~~and ~~were~~financial ~~partially~~condition ~~offset~~and bycould damage our reputation and limit our ability to attract and ~~(a) price~~retain ~~reductions~~customers. onMitigating ~~certain~~our ~~components,~~risk ~~(b)~~ is the ~~under-absorption~~fact that most of ~~fixed~~the orcomponents ~~partially~~we manufacture ~~fixed~~are designed by our customers and are integrated into systems that ~~manufacturing~~were ~~overhead~~designed ~~during~~by aour ~~period~~customers ofor ~~reduced~~their ~~sales~~customers. ~~volume,~~For ~~and~~this ~~(c) expenses~~reason ~~related~~we tobelieve that the ~~roll-out~~ risk of ~~new~~a ~~medical~~product ~~components~~liability claim against us is reduced.

~~Selling~~Self-insurance ~~and~~may ~~administrative~~subject ~~expenses~~us ~~of the Rubber Group were essentially unchanged during 2006, compared~~ to ~~2005,~~possible ~~but~~liability ~~increased~~that asmay abe ~~percentage~~partially ofor ~~net~~completely ~~sales because of the reduction in net sales~~uninsured.

~~During~~ We ~~2006,~~maintain ~~income~~insurance ~~from~~coverage ~~operations~~for ~~totaled~~many ~~$7,642,000,~~aspects anof ~~increase~~our business and operations. Based on our evaluation of ~~$608,000,~~the orvarious ~~8.6%~~risks to which we may be exposed, we ~~compared~~retain toall ~~2005.~~or ~~EBITDA~~a portion of the liability for ~~2006~~potential ~~was~~losses ~~$14~~because of various deductibles,~~097~~ coverage limits,~~000,~~ orand 18retentions.5% ofAlthough ~~net~~we ~~sales~~cannot assure you that we will be successful in our efforts, ~~compared~~we attempt to ~~$14~~limit our liability through,~~260,000,~~ oramong ~~16.8%~~other things, the ongoing training and education of ~~net~~our ~~sales~~employees, ~~for~~the implementation ~~2005.~~of ~~EBITDA~~safety ~~for~~programs, ~~2005~~the ~~included~~ongoing atesting ~~gain~~and evaluation of the safety ~~sale~~and suitability of ~~the~~our ~~LaGrange,~~workplace ~~Georgia~~environments, ~~manufacturing~~ ~~facility~~the development of ~~$571~~sound business practices,~~000.~~ ~~Excluding~~and ~~that~~the ~~gain,~~exercise ~~our~~of ~~EBITDA~~care ~~for~~and ~~2005~~judgment ~~was~~in ~~$13,689,000,~~the ornegotiation of 16contracts with our customers.1% However, ofwe ~~net~~cannot ~~sales.~~assure you that we will be successful in our efforts to limit our liability.

~~During 2005, we sold our facility in LaGrange, Georgia, which was part of our connector seals business, for net proceeds of $1,882,000 and recorded a pre~~-~~tax~~ ~~gain~~11 on the sale of $571,000. Excluding the gain on the sale of the LaGrange facility, losses from operations of the LaGrange facility totaled $1,667,000 during 2005, including $633,000 of expenses related to the closure of the facility. -

~~-24-~~ We are subject to interest rate changes.

~~Table~~At December 31, 2008, we had a total of ~~Contents~~$38,175,000 of outstanding floating-rate debt at interest rates tied to either the London Interbank Offered Rate (“LIBOR”) or the prime rate. Currently, we do not purchase derivative financial instruments to hedge or reduce our interest rate risk. As a result, changes in either LIBOR or the prime rate affect the rates at which we borrow funds.

~~Metals~~A ~~Group~~ change of control could result in a limitation on the use of our net operating loss carryforward.

~~The~~At ~~Metals~~December ~~Group~~31, ~~manufactures~~2008, ~~machined~~our ~~metal~~unused ~~components~~federal ~~primarily~~net operating loss carryforward totaled approximately $36,306,000. Under Section 382 of the Internal Revenue Code of 1986, as amended, if we undergo an “ownership change” the amount of our pre-change operating losses that may be utilized to offset future taxable income will be subject to an annual limitation. An ownership change occurs if the percentage of stock of the Company that is owned by certain groups of less than 5% shareholders, all treated as a single shareholder for ~~automotive~~this ~~industry customers~~purpose, ~~from~~increases ~~aluminum~~by more than 50 percentage points over a three-year period. Based on the value of the Company’s common stock being $4.46 per share, ~~brass~~as described in the Disclosure Statement filed with Bankruptcy Court on December 8, ~~steel~~2008, we anticipate that the issuance of the Series C Preferred Stock and ~~stainless~~common ~~steel~~stock ~~bars~~pursuant to the plan of reorganization that we filed with the Bankruptcy Court on December 8, ~~forgings~~2008, ~~and~~if ~~cold~~not further amended, would constitute an “ownership change.” Assuming that we are in chapter 11 on the day that an ownership change occurs, the limitation imposed by Section 382 is generally equal to the product of (i) the fair market value of our stock immediately after the ownership change multiplied by (ii) the federal “long-~~headed~~term ~~blanks~~tax-exempt rate” in effect on the date of the ownership change. The annual limitation may be increased in the event that we have overall “built-in” gains in our assets at the time of the ownership change.

~~The~~(THIS ~~following~~SPACE ~~table~~INTENTIONALLY ~~sets~~LEFT ~~forth the operating results of the Metals Group for 2007, 2006, and 2005 and the reconciliation of the Metals Group’s loss from operations to its EBITDA (dollar amounts in thousands~~BLANK):

	Years Ended December 31
	2007					2006					2005
Net sales	$	13,821		100.0	%	$	11,811		100.0	%	$	11,958		100.0	%
Cost of sales		13,490		97.6			12,387		104.9			12,650		105.8
Gross profit (loss)		331		2.4			(576	)	(4.9	)		(692	)	(5.8	)
Selling and administrative expenses		523		3.8			669		5.6			723		6.0
Gain on sale of assets held for sale		—		—			—		—			1,100		9.2
Loss from operations		(192	)	(1.4	)		(1,245	)	(10.5	)		(315	)	(2.6	)
Add back: depreciation and amortization		682		4.9			820		6.9			1,138		9.5
EBITDA	$	490		3.5	%	$	(425	)	(3.6	)%	$	823		6.9	%

- 12 -

~~During~~Item ~~2007, net sales of the Metals Group increased by $~~2~~,010,000, or 17%, compared to 2006, primarily as a result of sales to new customers~~. ~~The three largest customers of the Metals Group accounted for 55.2%, 51.2%, and 61.1% of the Metals Group’s net sales during 2007, 2006, and 2005, respectively.~~ PROPERTIES

~~Cost~~The offollowing ~~sales~~table asshows athe ~~percentage~~locations ofand ~~net~~square ~~sales~~footage ~~decreased to 97.6% during 2007 from 104.9% during 2006, primarily because~~ of ~~(1) improved~~our ~~production efficiencies, (2) improved absorption of fixed or partially fixed~~ manufacturing ~~overhead~~facilities ~~during~~at ~~a period of increasing net sales, (3)~~December ~~lower depreciation expense~~31, ~~and (4)~~ ~~reduced material costs as a percentage of net sales.~~ 2008:

Selling and administrative expenses of the Metals Group decreased from $669,000 during 2006 to $523,000 during 2007, primarily because of a reduction in headcount.

				Square Feet
Rubber Group:
Jasper, Georgia					100,000
North Canton, Ohio					42,000
Vienna, Ohio					64,000
Rock Hill, South Carolina					61,000
Total Rubber Group					267,000

Metals Group:
Rochester, New York					60,000
Total Company					327,000

~~During~~All ~~2007,~~of ~~the~~our ~~loss~~plants ~~from~~are general manufacturing facilities suitable for our operations. ~~was~~We ~~$192,000,~~believe ~~compared~~that toour afacilities ~~loss~~are ~~from~~adequate ~~operations~~to ~~of $1,245,000~~meet ~~during~~our ~~2006~~current operating needs. ~~EBITDA~~All ~~for~~of ~~2007~~our ~~was~~manufacturing ~~positive~~facilities ~~$490~~are owned by us,~~000,~~ ~~compared~~and toall ~~negative~~are ~~$425,000~~encumbered ~~for 2006~~by mortgages.

~~During~~We ~~2006~~occupy, ~~net~~in ~~sales of~~ the ~~Metals~~aggregate, ~~Group decreased by $147~~4,000, orsquare ~~1.2%,~~feet ~~compared~~of tooffice ~~2005, primarily~~space ~~because~~for ofcorporate ~~decreased~~executive ~~unit~~and ~~sales~~administrative topurposes. ~~most~~We ~~existing~~lease ~~automotive~~an ~~industry~~office ~~customers~~in Cleveland, ~~substantially~~ ~~offset~~Ohio, byand ~~sales~~reimburse toan aaffiliate ~~new~~for ~~automotive customer and~~ the ~~effects~~cost of ~~the~~leasing ~~pass-through~~an ~~of certain~~office ~~increases~~ in ~~raw~~New ~~material~~York ~~costs~~City.

~~-25-~~ The manufacturing facility that was utilized by our discontinued diecasting business is located in Lakewood, New York, has 93,000 square feet of space, and is available for sale. The facility is currently leased to a third party for $159,000 per annum. The lessee has an option to purchase the facility for $1,590,000. We also own a 10,000 square foot building in Lakewood, New York, that is vacant and available for sale.

~~Table~~We own approximately 18 acres of ~~Contents~~land bordering State Route 515 in Ellijay, Georgia. This land, which was acquired as a potential plant site, has recently been graded and is available for sale. The property has a book value of $1,309,000 as of December 31, 2008, and an appraised value of $4,550,000 as of June 10, 2008. Additionally, we own six abutting residential lots, comprising approximately 7 acres.

~~Cost~~During the first quarter of ~~sales~~2009, aswe adecided ~~percentage~~to ofclose ~~net~~our ~~sales~~connector-seal ~~decreased~~manufacturing facility in Vienna, Ohio, because we do not believe that it will be possible to ~~104.9%~~return ofthis ~~net~~facility ~~sales~~to ~~during~~an ~~2006~~adequate ~~from 105.8%~~level of ~~net~~profitability ~~sales~~in ~~during~~the ~~2005,~~foreseeable ~~primarily~~future. ~~because~~We ofare ~~(1) improved~~transferring the production ~~efficiencies,~~of ~~(2) lower~~connector ~~depreciation~~seals ~~expense,~~to ~~and~~our ~~(3) reduced~~other ~~consulting~~rubber ~~fees,~~molding ~~offset,~~facilities. We anticipate ceasing operations in ~~part,~~that facility by ~~increased~~June ~~raw material~~30, ~~costs~~2009.

~~During~~Item ~~2005,~~3. weLEGAL ~~sold our land and building in Casa Grande, Arizona, for net proceeds of $2,636,000, and we recorded a pre-tax gain on the sale of $1,100,000.~~ PROCEEDINGS

~~Selling~~ On ~~and~~April ~~administrative~~1, ~~expenses~~2008, we filed a voluntary petition for relief under chapter 11 of title 11 of the ~~Metals~~United ~~Group~~States ~~decreased~~Code byin ~~$54,000,~~the orUnited 7States Bankruptcy Court for the Southern District of New York (Case No.~~5%,~~ ~~during 2006~~08-11153). ~~compared~~We continue to ~~2005,~~operate ~~primarily~~our ~~because~~businesses ofand amanage ~~reduction~~our inproperties ~~bad~~as ~~debt~~debtors ~~expense.~~ in

~~During 2006, the loss from operations was $1,245,000, compared to a loss from operations of $315,000 during 2005, which included the one~~-~~time~~ ~~gain~~13 of $1,100,000 on the sale of our land and building in Casa Grande, Arizona. EBITDA for 2006 was negative $425,000 compared to positive $823,000 for 2005. Excluding the gain on the sale of the Casa Grande, Arizona, facility, the loss from operations for 2005 was $1,415,000, and EBITDA was negative $277,000. -

~~Corporate~~possession ~~Office~~ under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

~~Corporate~~In ~~Office~~connection ~~expenses~~with this petition, ~~which~~we ~~are~~obtained ~~not~~a ~~included~~financing inpackage that we believed provides us more than adequate liquidity to operate our business without interruption throughout the ~~operating~~term ~~results~~of the chapter 11 proceedings. This financing package consisted of (1) an arrangement with our senior, secured lenders to freeze the ~~Rubber~~loan ~~Group or~~under our revolving line of credit at the ~~Metals~~amount ~~Group~~outstanding on April 1, ~~represent~~2008, ~~administrative~~and ~~expenses~~to ~~incurred~~permit ~~primarily~~us atto utilize the collections on our ~~New~~accounts ~~York~~receivable ~~City~~in the operation of our business through February 25, 2009, which was subsequently extended to May 22, 2009, and (2) an unsecured, super-priority debtor-in-possession loan in the amount of $4,000,000, which matures on December 31, 2009, between us, as borrowers, and Lubin Partners LLC, William B. Conner, and ORA Associates LLC, as lenders. Michael A. Lubin, the Chairman of the Board, co-principal executive officer, and nominee for director of the ~~Cleveland~~Company, ~~offices~~is the managing member of Lubin Partners LLC. ~~Corporate~~Mr. ~~Office~~Conner ~~expenses~~is ~~are~~a ~~consolidated~~director and nominee for director of the Company. Mr. Lubin is a creditor and stockholder of the Company and Mr. Conner is a stockholder of the Company. The arrangement with the ~~selling~~senior, secured lenders provides for a continuation of the scheduled monthly, term loan principal payments, which aggregate $269,000 per month, and ~~administrative expenses~~the elimination of the ~~Rubber~~default ~~Group~~interest premium, so that our interest rates returned to the original contractual rates. The debtor-in-possession loan is subordinated to the senior, secured loans, and bears interest at LIBOR plus 7%, subject to a minimum interest rate of 10%. The arrangements for the ~~Metals~~use ~~Group~~of cash collateral and the debtor-in-possession ~~our~~loan ~~consolidated~~contain certain financial ~~statements~~and other covenants and certain events of default.

~~The~~In ~~following~~addition, ~~table~~we ~~sets~~are ~~forth~~subject ~~the~~to ~~operating~~various ~~results~~claims and legal proceedings covering a wide range of matters that arise in the ~~Corporate~~ordinary ~~Office~~course of our business activities. It is our policy to record accruals for ~~2007,~~claims ~~2006,~~ and ~~2005~~ legal proceedings when we consider a loss to be probable and ~~the~~we ~~reconciliation~~can ofreasonably estimate the ~~Corporate~~amount ~~Office’s~~of that loss. ~~from~~The ~~operations~~various actions to ~~its~~which ~~EBITDA~~we ~~(dollar amounts~~are or may in ~~thousands):~~ the future be a party are at various stages of completion. Although we cannot assure you as to the outcome of existing or potential litigation, we currently believe, based upon the information available to us, that the outcome of those actions will not have a material adverse effect upon our results of operations or financial condition.

	Years Ended December 31
	2007			2006			2005
Loss from operations	$	(3,108	)	$	(2,313	)	$	(2,322	)
Add back: depreciation and amortization (1)		28			20			10
EBITDA	$	(3,080	)	$	(2,293	)	$	(2,312	)

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

~~(1)~~We ~~Excludes~~did ~~the~~not ~~amortization~~submit ~~and~~any ~~write-off~~matters ofto ~~deferred~~a ~~financing~~vote ~~expenses,~~of ~~which~~security ~~totaled~~holders ~~$1,249,000,~~during ~~$3,078,000, and $1,315,000, in 2007, 2006, and 2005, respectively, and which is included in interest expense in~~ the ~~consolidated~~fourth ~~financial~~quarter ~~statements~~of 2008.

~~During~~- ~~2007,~~14 corporate administrative expenses increased by $795,000, compared to 2006, primarily because we incurred expenses of $698,000 in connection with our efforts to refinance, restructure, or repay our senior, secured debt and Senior Subordinated Notes as more fully discussed in the section titled “Liquidity and Filing of Chapter 11” in this Part II, Item 7. The balance of the increase in cost was primarily due to higher premiums for liability insurance. -

~~Corporate~~PART ~~Office expenses were essentially unchanged in 2006, compared to 2005.~~ II

~~Discontinued~~Item ~~Operation~~ 5. MARKET FOR OUR COMMON STOCK AND OTHER STOCKHOLDER MATTERS

~~The~~Our ~~results~~common ofstock ~~operations,~~is ~~assets~~traded in the over-the-counter market through the Pink Sheets. At March 17, ~~liabilities~~2009, ~~and~~there ~~cash~~were ~~flows~~approximately 570 holders of record of our ~~former~~common ~~die~~stock. ~~casting business~~Trading ~~have~~in ~~been~~shares ~~classified~~of asour ~~discontinued~~common ~~operations~~stock is limited. The following table sets forth prices at which transactions in our common stock were reported on the ~~consolidated~~Pink ~~financial~~sheets. ~~statements~~Additional trading data can be found at the Pink OTC Markets, Inc. website, www.pinksheets.com.

-26-

	Years Ended December 31
	2008				2007
	High		Low		High		Low
First quarter	$	0.55	$	0.25	$	0.41	$	0.10
Second quarter	$	0.75	$	0.25	$	0.70	$	0.13
Third quarter	$	1.01	$	0.75	$	0.80	$	0.60
Fourth quarter	$	1.01	$	0.15	$	0.70	$	0.25

~~Table~~These ofprices ~~Contents~~reflect inter-dealer prices and may not necessarily represent actual transactions. We are not able to determine whether retail markups, markdowns, or commissions were included in the above prices. We believe that eight brokerage firms currently make a market in our common stock, although both bid and asked quotations may be limited.

~~Interest~~We ~~expense~~have ~~allocated~~not paid dividends on our common stock since 1979, and we have no current plans to ~~discontinued~~reinstate ~~operations~~the ~~totaled~~payment ~~$168~~of dividends. In addition,~~000~~ agreements defining the rights of the holders of our debt currently restrict us from paying cash dividends on our common stock. At December 31, ~~$178~~2008,~~000,~~ ~~and~~we were in arrears in the payment of nine quarterly dividends in the aggregate amount of $~~262~~59,~~000 for~~400 ~~2007~~on our $8 Cumulative Convertible Preferred Stock, ~~2006~~Series B (the “Series B Preferred Stock”), and ~~2005~~we are in arrears with respect to the redemption of all of the outstanding Series B Preferred Stock for an aggregate redemption price of $660,000, ~~respectively~~representing the scheduled redemptions for 2000 through 2007.

~~During~~For ~~2007~~information ~~and~~on ~~2006,~~“Security weOwnership ~~increased~~of ~~our~~Certain ~~provision~~Beneficial ~~for~~Owners ~~environmental remediation by $87,000~~ and ~~$255,000,~~ ~~respectively,~~Management ~~to cover the current~~ and ~~projected~~Related ~~cost~~Stockholder ~~of certain environmental remediation at the former die casting business’s manufacturing facility. On March 7~~Matters,” ~~2007,~~please ~~the State~~refer ~~of New York Department of Environmental Conservation informed us that it intended~~ to ~~commence the~~Part ~~process to classify it as a Class 4 Site under the State of New York Environmental Conservation Law~~III, ~~which~~Item ~~would mean that the site was properly closed and only required continued monitoring~~12.

~~The~~Equity ~~following~~Compensation ~~table~~Plan ~~summarizes certain operating data of discontinued operations for 2007, 2006, and 2005 (dollar amounts in thousands):~~ Information

	Years Ended December 31
	2007			2006			2005
Net sales	$	—		$	—		$	3,381
Income (loss) from operations before increase in carrying value of assets held for sale and gain on the sale of assets	$	(121	)	$	(294	)	$	130
Increase in carrying value of assets held for sale		—			—			542
Gain on sale of assets		—			—			568
Income (loss) from discontinued operations		(121	)		(294	)		1,240
Allocated interest expense		168			178			262
Income (loss) from discontinued operations before income taxes		(289	)		(472	)		978
Income tax provision (1)		—			—			334
Income (loss) from discontinued operations	$	(289	)	$	(472	)	$	644

The following table sets forth information about our equity compensation plans at December 31, 2008 (share amounts in thousands):

(1) The income tax provision in 2005 was offset by an income tax benefit recorded in continuing operations. Income tax benefits in 2007 and 2006 were offset by provisions for valuation allowances.

		Weighted-average exercise price of outstanding options, warrants and rights
Equity compensation plans:
Approved by security holders	—	$	NA	310
Not approved by security holders	—		NA	—
Total	—	$	NA	310

-27 15 -

~~Table~~Item of6. ~~Contents~~SELECTED FINANCIAL DATA

~~Interest~~The ~~Expense~~following table sets forth selected consolidated financial data, including the reconciliation of income or loss from continuing operations to earnings from continuing operations before interest, taxes, depreciation, amortization, and other non-operating items of income or expense (“EBITDA”) and the reconciliation of EBITDA to net cash provided by our operating activities, for each of the years in the five-year period ended December 31, 2008 (dollar amounts in thousands, except per share amounts). The term EBITDA, as used by us, does not include reorganization items, which are reflected as other expense in the consolidated statements of operations. The financial data has been derived from our consolidated financial statements, which have been audited by Malin, Bergquist & Company, LLP (2007 and 2008) and Ernst & Young LLP (2004 through 2006), independent registered public accounting firms. This information is not necessarily indicative of the results of future operations and should be read in conjunction with, and is qualified by, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, and our consolidated financial statements in Part II, Item 8.

A breakdown of interest expense for 2007, 2006, and 2005 is set forth below (dollar amounts in thousands):

	Years Ended December 31
	2008			2007			2006			2005			2004
Summary of operations:

Net sales	$	73,029		$	88,408		$	87,901		$	96,842		$	110,353
Cost of sales		63,107			76,529			77,159			87,369			98,304
Gross profit		9,922			11,879			10,742			9,473			12,049
Selling and administrative expenses (1)		6,685	(2)		7,204			6,658			6,747			7,383
Gain on sale of assets held for sale		—			—			—			(1,671	)		—
Income from operations		3,237			4,675			4,084			4,397			4,666
Other income (expense):
Interest expense (3)		(8,726	)(4)		(11,339	)(5)		(10,943	)		(9,200	)		(8,662	)
Reorganization items, net		(4,540	)		—			—			—			—
Gain on repurchase of debt		—			—			—			77			8,598
Income (loss) from continuing operations before income tax		(10,029	)		(6,664	)		(6,859	)		(4,726	)		4,602
Income tax provision (benefit)		35			6			18			(299	)		(196	)
Income (loss) from continuing operations		(10,064	)		(6,670	)		(6,877	)		(4,427	)		4,798
Income (loss) from discontinued operations		(229	)		(289	)		(472	)		644			(3,208	)

Net income (loss)	$	(10,293	)	$	(6,959	)	$	(7,349	)	$	(3,783	)	$	1,590

Net income (loss) per diluted common share	$	(2.07	)	$	(1.41	)	$	(1.49	)	$	(0.77	)	$	0.32
										(continued on next page)

	Years Ended December 31
	2007		2006		2005
Contractual interest rates:
Senior, secured loans	$	3,698	$	3,334	$	2,903
Senior Subordinated Notes		4,101		4,101		4,101
All other		92		525		1,143
Subtotal		7,891		7,960		8,147
Incremental interest rates:
Senior, secured loans — default or forbearance premium		698		62		—
Senior Subordinated Notes — forbearance premium		1,279		—		—
Senior Subordinated Notes — interest on missed interest payments		390		21		—
Subtotal		2,367		83		—
Costs and fees, including amortization and write-off of deferred financing costs		1,249		3,078		1,315
Total interest expense		11,507		11,121		9,462
Less: Interest expense allocated to discontinued operations		168		178		262
Interest expense related to continuing operations	$	11,339	$	10,943	$	9,200

- 16 -

The average amount of debt outstanding in 2007, 2006, and 2005 was $72,377,000, $69,736,000, and $73,832,000, respectively. In 2007, 2006, and 2005 cash interest payments were $4,431,000, $6,749,000, and $8,196,000, respectively. For more information about the status of our senior, secured debt and our Senior Subordinated Notes, please refer to the discussion under the section titled “Liquidity and Filing of Chapter 11” in this Part II, Item 7.

(continued from prior page)
	Years Ended December 31
	2008			2007			2006			2005			2004
Other data (continuing operations):
Reconciliation of income (loss) from continuing operations to EBITDA from continuing Operations (6):
Income (loss) from continuing operations Adjustments:	$	(10,064	)	$	(6,670	)	$	(6,877	)	$	(4,427	)	$	4,798
Depreciation and amortization included in income from continuing operations		5,333			6,437			7,295			8,374			8,444
Gain on repurchase of debt		—			—			—			(77	)		(8,598	)
Interest expense		8,726			11,339			10,943			9,200			8,662
Reorganization items, net		4,540			—			—			—			—
Income tax provision (benefit)		35			6			18			(299	)		(196	)
EBITDA from continuing operations (6)		8,570			11,112			11,379			12,771			13,110
Adjustments to reconcile EBITDA to net cash provided by operating activities (6):
Interest expense		(8,726	)		(11,339	)		(10,943	)		(9,200	)		(8,662	)
Reorganization items, net		(4,540	)		—			—			—			—
Amortization and write-off of deferred financing expenses included in interest expense		251			1,249			3,078			1,315			1,098
Income tax benefit (provision)		(35	)		(6	)		(18	)		299			196
Gain on sale of assets held for sale		—			—			—			(1,671	)		—
Net change in accrued reorganization items, net		1,168
Net change in operating assets and liabilities		7,432			4,420			(940	)		3,628			1,326

Net cash provided by operating activities	$	4,120		$	5,436		$	2,556		$	7,142		$	7,068
Net cash provided (used) by investing activities	$	(2,847	)	$	(2,741	)	$	(2,628	)	$	683		$	(6,085	)
Net cash provided (used) by financing activities	$	4,093		$	(2,333	)	$	621		$	(11,212	)	$	(580	)
Capital expenditures (7)	$	2,695		$	2,664		$	2,661		$	3,330		$	6,057

Gain on the Repurchase of Debt

	December 31
	2008			2007			2006			2005			2004
Financial position (8):
Current assets	$	25,402		$	21,877		$	20,222		$	22,396		$	28,907
Current liabilities and liabilities subject to compromise		99,324			87,771			82,211			41,092			35,777
Net working capital deficit	$	(73,922	)	$	(65,894	)	$	(61,989	)	$	(18,696	)	$	(6,870	)
Total assets	$	53,328		$	52,367		$	54,440		$	62,343		$	78,377
Long-term debt, excluding current portion	$	—		$	5		$	406		$	41,545		$	58,949
Total stockholders’ deficit	$	(46,396	)	$	(35,941	)	$	(28,991	)	$	(21,656	)	$	(17,875	)
										(footnotes on next page)

~~During 2005, we repurchased $133,000 principal amount of Senior Subordinated Notes together with accrued interest thereon of $97,000, for $153,000 and recorded a pre~~-~~tax~~ ~~gain~~17 ~~of $77,000.~~ -

~~Income~~(footnotes ~~Tax~~for ~~Provision~~ the table on prior pages)

The income tax provisions recorded in 2007 and 2006 consisted of estimated state income taxes. The federal income tax benefit recognized by our continuing operations in 2005 resulted from the recognition of an offsetting amount of federal income tax expense by the Company’s discontinued operations in 2005. For additional information concerning income taxes and related matters, see Note 7, “Income Taxes,” in the notes to our consolidated financial statements in Part II, Item 8. (1)

~~-28-~~ Selling and administrative expenses for 2008 and 2007 included $508,000 and $698,000, respectively, of expenses incurred in connection with our efforts to refinance or restructure our indebtedness.

~~Table of Contents~~(2)

~~Liquidity~~Selling and ~~Capital~~administrative ~~Resources~~ expenses for 2008 included $488,000 of one-time fees and expenses related to the services of a consulting firm that was retained to assist us with the upgrading of the operating systems and manufacturing procedures and controls at our facility in Rock Hill, South Carolina, where we manufacture rubber components used in medical devices.

~~Operating activities~~ (3)

~~During~~Included ~~2007,~~the ~~operating~~amortization ~~activities~~and write-off of ~~our~~deferred ~~continuing~~financing ~~operations~~expenses ~~provided net cash~~ of $5251,~~436,~~000., ~~Accounts receivable increased by~~ $1,~~256~~249,000 ~~during 2007~~, ~~primarily because (1) outstanding billings for sales of tools and automation equipment increased by~~ $~~398~~3,078,000, ~~from~~ $~~270~~1,315,000 ~~at December 31~~, ~~2006,~~and to $~~668~~1,098,000, atin ~~December 31~~2008, 2007, ~~and (2) a number of automotive and medical customers increased the time they took to remit payment for their invoices. Inventories increased by $543~~2006,~~000.~~ ~~Accrued interest expense increased by $5~~2005,~~824,000~~ ~~because of additional accruals of interest on our Senior Subordinated Notes~~ and ~~Junior~~2004, ~~Subordinated Note~~respectively.

~~Net cash used by operating activities of our discontinued operations totaled $158,000.~~ (4)

~~Investing~~Interest ~~Activities~~ expense for 2008 included $172,000 of default interest premium on our senior, secured debt, $1,455,000 of interest on missed interest payments and forbearance interest premium on the Senior Subordinated Notes, $296,000 of interest on the debtor-in-possession loan, and $251,000 of amortization of financing costs.

During 2007, investing activities of our continuing operations used net cash of $2,741,000. Capital expenditures during 2007 attributable to the Rubber Group, the Metals Group, and the Corporate Office, including $28,000 of equipment purchased under capital leases, totaled $2,068,000, $519,000, and $77,000, respectively. Capital expenditures for the Rubber Group, the Metals Group, and the Corporate Office are currently projected to total $3,010,000, $511,000, and $10,000, respectively, for the year ending December 31, 2008. At December 31, 2007, we had approximately $113,000 of unrecorded commitments outstanding to purchase equipment. (5)

~~Financing~~Interest ~~Activities~~ expense for 2007 included $698,000 of default interest premium on our senior, secured debt, $1,279,000 of forbearance interest expense on the Senior Subordinated Notes, and $390,000 of interest on the interest payments that we failed to make on the Senior Subordinated Notes in 2006 and 2007.

During 2007, our financing activities used net cash of $2,333,000. We used $3,232,000 of cash to make scheduled principal payments on our equipment and real estate term loans, $78,000 of cash to repay other debt, and $1,286,000 of cash to fund capitalized financing expenses that were incurred in connection with our efforts to restructure, refinance, or repay our secured debt and our Senior Subordinated Notes. Capitalized financing expenses incurred during 2007 were amortized over the terms of the respective forbearance agreements. The forbearance agreements, which are discussed in more detail below, expired in January 2008. (6)

~~Liquidity~~EBITDA is not a measure of performance under U.S. generally accepted accounting principles (“GAAP”) and ~~Filing~~should not be considered in isolation or used as a substitute for income from operations, net income, net cash provided by operating activities, or other operating or cash flow statement data prepared in accordance with GAAP. For more information on the use of ~~Chapter~~EBITDA as a financial measure, please refer to our discussion of EBITDA in “Results of Operations – Comparison of 2008, 2007, and 2006” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 11 7.

During the second half of 2006, we experienced a significant decrease in sales of automotive components. We believe that this reduction was primarily a result of production cutbacks by the Detroit-based automakers and resultant production cutbacks and inventory adjustments by our customers, who are primarily tier-one suppliers to automobile manufacturers. Although we reduced expenses in an effort to offset the impact of the lower sales, our operating profit and cash flow during the second half of 2006 were adversely affected, as was the availability under our revolving line of credit. (7)

WeIncluded have not made any of the scheduled interest payments due on our Senior Subordinated Notes since November 1, 2006. From May 25, 2007, through January 24, 2008, we operated under a forbearance agreement with six hedge funds that hold $2528,~~428,~~000 ~~aggregate principal amount, or 74.4%,~~ of ~~the~~equipment ~~Senior~~purchased ~~Subordinated~~under ~~Notes~~capital ~~outstanding.~~leases ~~While the forbearance agreement was~~ in ~~effect, we were not required to make interest payments on the Senior Subordinated Notes, and the forbearing noteholders could not take any action to collect any past due interest payments~~2007. AnIncluded ~~additional~~ $7157,~~772,~~000 ~~aggregate principal amount, or 22.7%~~ of ~~the~~equipment ~~Senior~~acquired ~~Subordinated~~with ~~Notes~~seller-provided ~~outstanding,~~financing ~~is held~~in ~~by certain of our affiliates and members of their families~~2006. ~~We agreed to raise the interest rate on the Senior Subordinated~~

~~-29-~~ (8)

~~Table~~Data includes assets and liabilities of ~~Contents~~discontinued operations.

~~Notes~~- ~~from~~18 12% to 16% for the period from March 9, 2007, through the earlier of the repayment of the Senior Subordinated Notes or the filing of a petition for relief under the United States Bankruptcy Code. At December 31, 2007, accrued interest on our Senior Subordinated Notes totaled $7,500,000. -

~~The~~Item ~~failure to make the scheduled interest payments on the Senior Subordinated Notes caused a cross-default under the agreements governing our secured debt~~7. ~~Additionally,~~MANAGEMENT’S weDISCUSSION ~~were~~AND ~~not~~ANALYSIS ~~in compliance~~OF ~~with~~FINANCIAL aCONDITION ~~financial~~AND ~~covenant~~RESULTS ~~related~~OF to fixed charge coverage on February 28, March 31, and April 30, 2007, or with a financial covenant related to leverage on March 31, 2007. From May 25, 2007, through January 24, 2008, we operated under a forbearance arrangement with the secured lenders. The forbearance agreement (1) provided that the secured lenders would take no action to accelerate or collect their loans as a result of any existing default or cross-default and (2) modified certain of the financial covenants effective March 31, 2007. During the forbearance period, we remained in compliance with all financial covenants, as modified, and we have remained current on all principal and interest payments owed to the secured lenders. OPERATIONS

Upon the commencement of the forbearance period, we engaged the Detroit-based investment banking firm of W.Y. Campbell & Company to assist in the review of the various strategic alternatives available to us to satisfy our outstanding indebtedness. As a consequence of this review, we determined to pursue a sale of the assets and business of the Rubber Group and, with the assistance of W.Y. Campbell, prepared an offering memorandum with respect to the proposed sale. During the summer and fall of 2007, we distributed the offering memorandum to a number of interested parties, including both financial and strategic purchasers. Overview

~~During~~Some ~~the fourth quarter~~ of ~~2007,~~our westatements ~~received~~in ~~several~~this ~~offers~~Form to10-K ~~purchase~~are ~~all~~“forward-looking ~~or portions of the assets of the Rubber Group~~statements.” ~~Based~~Forward-looking ~~upon~~statements ~~these~~usually ~~offers~~can ~~and~~be ~~the~~identified ~~advice~~by ofour ~~W.Y.~~use ~~Campbell, we concluded that (1) the value~~ of ~~the~~words ~~Rubber~~like ~~Group~~“believes,” ~~alone~~“expects,” is“may,” ~~significantly~~“will,” in“should,” ~~excess~~“anticipates,” of“estimates,” ~~our~~“projects,” ~~total indebtedness~~or ~~and (2)~~ the ~~proposal~~negative ~~that~~thereof. ~~would~~They ~~provide~~may ~~the~~be ~~maximum~~used ~~value~~when ~~for~~we ~~all~~discuss ~~of our constituencies was an offer from a major~~strategy, ~~multi-national,~~which ~~industrial~~typically ~~company~~involves torisk ~~purchase~~and ~~our facility in Rock Hill~~uncertainty, ~~South~~and ~~Carolina,~~they ~~which~~generally ~~specializes~~are inbased ~~manufacturing~~upon ~~molded~~projections ~~rubber~~and ~~components for~~estimates ~~use~~rather inthan ~~medical~~historical ~~devices.~~facts ~~The~~and ~~proposed purchase price of $32,000,000 would have resulted in an after-tax gain of approximately $26,000,000~~events.

~~During~~Forward-looking ~~January 2008,~~statements weare ~~approached~~subject ~~the~~to ~~six~~a ~~hedge~~number ~~funds~~of risks and uncertainties that ~~control~~could cause our ~~Senior~~actual ~~Subordinated Notes~~results or performance to ~~advise~~be ~~them~~materially ofdifferent from the ~~following~~future results or performance expressed in or implied by those statements. Some of those risks and uncertainties are:

1. We had decided to pursue the proposal to purchase the Rock Hill facility; 2. We had received a proposal from a new secured lender to provide us with a, $36,700,000 senior, secured credit facility upon completion of the sale of the Rock Hill facility; 3. We believed that the proceeds of the sale and the new credit facility would permit us to pay all accrued interest on the Senior Subordinated Notes plus 50% of the principal amount of the Senior Subordinated Notes held by non-affiliates; 4. In order to facilitate the refinancing, the balance of the Senior Subordinated Notes held by non-affiliates would have to be extended to mature on August 31, 2013, and would receive cash interest at 12% per annum; and 5. We had agreed that the 22.7% of the Senior Subordinated Notes held by affiliates would be converted into shares of our common stock. At the same time, we requested an extension of the forbearance agreement to May 31, 2008, in order to provide the prospective purchaser and•

our ability to operate pursuant to the terms of our debtor-30in- possession credit arrangements;

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~~the~~our ~~new~~ability ~~secured~~to ~~lender~~obtain ~~the~~court ~~time~~approvals ~~they~~with ~~required~~respect to ~~complete~~motions ~~their~~in ~~due~~the ~~diligence~~chapter ~~and~~11 ~~documentation.~~proceedings;

In late January 2008, the six hedge funds responded with an alternative proposal for an extension of the forbearance arrangement. After reviewing this proposal with our counsel and W.Y. Campbell, we concluded that it would not be in the best interest of all of our creditors and equity holders to proceed with an extension on the terms proposed; further discussions on this matter were unproductive and, as a result, the forbearance agreement expired on January 29, 2008. Subsequent to the expiration, we continued our discussions with the six hedge funds and proposed a number of transactions for the restructuring of our debt, but each of these proposals was rejected. Ultimately, we determined that the best available method to effect a restructuring of our debt on terms that would be fair to all of our creditors and stockholders was to utilize the provisions of chapter 11 of the United States Bankruptcy Code. •

Onour ~~April 1,~~ability ~~2008,~~to weobtain filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. In connection with this petition, we obtained a financing ~~package~~ that wewill ~~believe~~permit ~~provides~~ us ~~more that adequate liquidity~~ to ~~operate~~exit ~~our business without interruption throughout the term of the~~ chapter 11 proceedings. This financing package consists of (1) an arrangement with our senior, secured lenders to freeze the loans under their revolving line of credit at the amount outstanding on April 1, 2008, and to permit us to use the collections on our accounts receivable in the operation of our business through February 25, 2009, and (2) a $4,000,000 debtor-in-possession (“DIP”) loan that matures on April 1, 2009. The arrangement with the senior, secured lenders provides for a continuation of our monthly, term loan principal payments, which aggregate $269,000 per month, and the elimination of the default interest premium, so that our interest rates return to the original contractual rates. The DIP loan is unsecured, subordinated to the senior, secured loans, and bears interest at LIBOR plus 7%, subject to a minimum interest rate of 10%. At April 30, 2008, the DIP loan had been fully funded and we had approximately $8,000,000 of cash on hand. ;

Upon the commencement of the chapter 11 proceedings, the interest rate on our Senior Subordinated Notes, which had been increased to 16% under the forbearance arrangement, was reduced to the contractual rate of 12%. •

Weour doability ~~not believe that we will need~~ to utilize the provisions of the Bankruptcy Code to effect any significant operational restructuring or to eliminate or renegotiate any unprofitable executory contracts that are material to our business. Our operations are healthy and profitable anddevelop, ~~although~~ ~~there can be no assurance~~confirm, ~~we expect that to continue throughout the term of chapter 11 proceedings. We have experienced no disruptions in our operations to date~~ and, ~~based~~consummate ~~upon discussions with~~ a ~~significant~~plan ~~number~~ of ~~major~~reorganization ~~suppliers~~with ~~and~~respect ~~customers,~~to ~~we do not expect any such disruption during~~ the ~~term of the~~ chapter 11 proceedings. ;

Although there can be no assurance that we will be successful, our intent in filing for chapter 11 protection is to use the powers afforded us under the Bankruptcy Code to effect a financial restructuring that results in a significant reduction in our total indebtedness on a basis that is fair and equitable to all of our creditors and stockholders. We intend to file a plan of reorganization with the Bankruptcy Court no later that June 30, 2008, and hope to confirm that plan by September 30, 2008. We expect that our plan of reorganization will result in a significant reduction in our aggregate indebtedness by means of a conversion of a significant portion of our subordinated debt to equity at a valuation that is reflective of the offers that were received during the sale process. We also intend to retain all of our operations, including the medical business. •

~~-31-~~ increases and decreases in business awarded to us by our customers;

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~~Our~~unanticipated ~~senior,~~price ~~secured~~reductions ~~credit~~for ~~facility~~our isproducts ~~secured~~as bya ~~substantially~~result ~~all~~ of ~~our assets and consists of the following:~~ competition;

1. At December 31, 2007, there were $10,632,000 of loans and $907,000 of letters of credit outstanding under a $17,500,000 revolving line of credit; at April 1, 2008, there were $14,219,000 of loans and $907,000 of letters of credit outstanding. The contractual interest rate on loans under the revolving credit is LIBOR plus 2.75%. From February 1, 2007, through March 31, 2008, a default premium of 2% was charged on the outstanding loan balances. 2. An equipment term loan with an outstanding principal balance of $9,167,000 at December 31, 2007, and $8,333,000 at April 1, 2008. The contractual interest rate on the equipment term loan is LIBOR plus 4.5%. From February 1, 2007, through March 31, 2008, a default premium of 2% was charged on the outstanding loan balances. 3. A real estate term loan with an outstanding principal balance of $14,022,000 at December 31, 2007, and $13,778,000 at April 1, 2008. The contractual interest rates on the real estate term loan are the prime rate plus 6% on $4,000,000 principal amount and LIBOR plus 4.5% on the balance. From February 1, 2007, through March 31, 2008, a default premium of 2% was charges on the outstanding loan balances.•

~~During 2007, the financial covenants contained in~~ our ~~revolving~~ability ~~line~~to ofoffset ~~credit~~any ~~and~~increases our secured term loans as revised by the terms of the forbearance agreement are as set forth below. At the end of the forbearance period on January 24, 2008, the financial covenants reverted back to those in ~~effect~~ ~~before~~ the ~~forbearance~~cost ~~agreement became effective. For the purpose~~ of ~~determining~~raw ~~compliance with the covenants set forth below certain expenses are excluded from the determination of EBITDA. Please refer to the financing documents for definitions of capitalized terms.~~ materials;

1. Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio is calculated by dividing consolidated EBITDA, less Unfinanced Capital Expenditures, by consolidated Fixed Charges, and was required to be not less than 0.75 to 1.0 for the five-, six-, and seven-month periods ending July 31, August 31 and September 30, 2007, respectively, and not less than 0.85 to 1.0 for each period commencing March 1, 2007, and ending on the last day of each month following September 30, 2007, until the forbearance period terminated. At December 31, 2007, our Fixed Charge Coverage Ratio was 1.16 to 1.00. 2. Leverage Ratio. The Leverage Ratio is calculated by dividing Senior Debt by consolidated EBITDA and was required to be not more than 3.75 to 1.0 for the five-, six-, and seven-month periods ending July 31, August 31 and September 30, 2007, respectively, and not more than 3.5 to 1.0 for each period commencing March 1, 2007, and ending on the last day of each month following September 30, 2007, until the forbearance period terminated. At December 31, 2007, our Leverage Ratio was 2.60 to 1.00. 3. Minimum Revenue. Revenue was required to be not less than specified amounts on a cumulative basis starting on March 1, 2007, through the last day of each month from May 2007 through the end of the forbearance period. At December 31, 2007, our cumulative revenue exceeded the minimum revenue requirement of $65,778,000 by $8,101,000. 4. Minimum EBITDA. EBITDA was required to be not less than specified amounts on a cumulative basis starting on March 1, 2007, through the last day of each month from May 2007 through the end of the forbearance period. At December 31, 2007, our cumulative•

~~-32-~~ increases and decreases in the production of cars and trucks in North America;

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~~EBITDA~~changes ~~exceeded~~in the ~~minimum~~competitive ~~cumulative EBITDA requirement of $8,973,000 by $908,000.~~environment;

~~Since the filing of chapter 11 on April 1, 2008, the financial covenants have been modified as follows:~~ •

1.unanticipated ~~Minimum~~operating Cash. Our aggregate cash must exceed $1,000,000 on May 2, 2008, and $500,000 on May 30, 2008, and on the last day of each four-week period thereafter. At May 2, 2008, aggregate cash was $7,538,000. 2. Maximum Expenditures. Our cumulative expenditures must be less than 110% of budgeted cumulative expenditures. At May 2, 2008, cumulative expenditures were $2,756,000 less than 110% of budgeted cumulative expenditures. 3. Minimum Net Sales. Our cumulative net sales must be greater than 90% of budgeted net sales. At May 2, 2008, cumulative net sales exceeded 90% of budgeted cumulative net sales by $596,000.results;

Our aggregate indebtedness at December 31, 2007, totaled $69,091,000 plus accrued interest on our Senior Subordinated Notes and Junior Subordinated Note of $6,484,000, compared to $70,107,000 plus accrued interest on our Senior Subordinated Notes and Junior Subordinated Note of $1,036,000 at December 31, 2006. •

Wechanges ~~had~~in aeconomic ~~net working capital deficit of $65,894,000 at December 31, 2007, compared to a net working capital deficit of $61,989,000 at December 31, 2006.~~ conditions;

Our consolidated financial statements have been presented on a “going concern basis,” as such term is used in U.S. generally accepted accounting principles. A going concern basis contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to restructure, refinance, or repay our senior, secured debt and Senior Subordinated Notes is subject to risks and uncertainties. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect this uncertainty. •

~~-33-~~ changes in interest rates;

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~~Contractual~~financial ~~Obligations~~ difficulties encountered by our customers or suppliers;

The following table summarizes our expected cash outflows from financial contracts and commitments in effect as of December 31, 2007 (dollar amounts in thousands). We have not included information on recurring purchases of raw materials for use in our manufacturing operations; those amounts are normally consistent from year to year and do not represent a long-term commitment. Contractual commitments also include $907,000 of letters of credit, which are not reflected in the table. •

	Payments Due by Period
						2009 &		2011 &		More than
	Total		2008			2010		2012		5 years
Equipment term loan	$	9,167	$	9,167		$	—	$	—	$	—
Real estate term loan		14,022		14,022			—		—		—
Subordinated debt		42,088		42,088	(1)		—		—		—
Series B Preferred Stock		693		693	(1)		—		—		—
Other long-term debt		67		67			—		—		—
Capital lease obligations		19		14			5		—		—
Operating lease obligations		188		71			115		2		—
Equipment purchase obligations		113		113			—		—		—
Fixed interest payments		8,316		8,316	(2)		—		—		—
Total	$	74,673	$	74,551		$	120	$	2	$	—

decreased access to the credit markets by our customers or suppliers;

(1)		Includes interest accrued at December 31, 2007.
(2)		Assumes (a) interest at the rate of 12% and 13%, respectively, on the Senior Subordinated Notes and Junior Subordinated Notes outstanding on December 31, 2007, and the interest accrued thereon, (b) interest on the equipment and real estate term loans at the contractual rates in effect on December 31, 2007, excluding default interest premiums and (c) interest on the revolving line of credit equivalent to the interest paid on the revolving line during 2007 excluding default interest premiums.

•

~~Inflation~~ chapter 11 filings by one or more of our customers or suppliers;

We generally attempt to pass through to our customers fluctuations in raw material costs; however, many of our customers will not accept price increases from us to compensate for increases in labor and overhead expenses that result from inflation. To offset inflationary increases in costs that we cannot pass through to our customers and to maintain or improve our operating margins, we attempt to improve our production efficiencies and manufacturing processes. We believe that, over time, prices are affected by many factors, but that the price we can charge our customers is governed by the competitive pricing set by the marketplace, rather than by increases or decreases in particular components of our cost. •

~~Environmental~~a ~~Matters~~ chapter 11 filing by any of the Detroit-based automobile manufacturers; and

We have been named from time to time as one of numerous potentially responsible parties or third-party defendants under applicable environmental laws for restoration costs at waste-disposal sites, and as a defendant or potential defendant in various other environmental law matters. It is our policy to record accruals for matters of these types when we deem a loss to be probable and we can reasonably estimate the amount of that loss. The various actions to which we are or may in the future be a party are at various stages of completion. Although we cannot assure you as to the outcome of existing or potential environmental litigation we believe, based upon the information currently available to us, that the outcome thereof will not have a material adverse effect upon our results of operations or financial condition. •

~~-34-~~ labor interruptions at our facilities or at our customers’ or suppliers’ facilities.

~~Table~~- of19 ~~Contents~~-

~~Quarterly~~For ~~Financial~~additional ~~Data~~ discussion about risks and uncertainties that may affect our business, please refer to “Risk Factors” in Part I, Item 1A.

~~For~~Our ~~quarterly~~results ~~financial~~of ~~data~~operations ~~please~~for ~~refer~~any toparticular ~~Note~~period ~~14,~~are ~~“Quarterly~~not ~~Financial~~necessarily ~~Data,”~~indicative inof the ~~notes~~ results to ~~our~~be ~~consolidated~~expected ~~financial~~for any succeeding period. The use of forward-looking statements should not be regarded as a representation that any of the projections or estimates expressed in ~~Part II~~or implied by those forward-looking statements will be realized, ~~Item 8~~and actual results may vary materially. We cannot assure you that any of the forward-looking statements contained herein will prove to be accurate. All forward-looking statements are expressly qualified by the discussion above.

~~Off-Balance~~Because ~~Sheet~~we ~~Arrangements~~ have substantial borrowings for a company our size, any negative event may have a greater adverse effect upon us than it would have upon a company of the same size that has less debt.

~~There~~Unless ~~are~~otherwise noindicated, ~~material~~the ~~off-balance~~data ~~sheet~~set ~~arrangements~~forth ~~that~~below wein ~~believe~~this ~~have~~Part ~~or are reasonably likely to have a material current or future effect on our financial condition~~II, ~~revenues~~Item ~~or expenses~~7, ~~results~~relate ofsolely ~~operations,~~to ~~liquidity,~~our ~~capital~~continuing ~~expenditures, or capital resources~~operations.

~~Critical~~Results ~~Accounting~~of ~~Policies~~Operations — Comparison of 2008, 2007, and ~~Estimates~~ 2006

~~Our~~The ~~accounting~~following ~~policies~~table ~~are~~sets ~~more~~forth ~~fully~~(in ~~described~~thousands inof ~~Note~~dollars) 1,our ~~“Summary~~consolidated ofoperating ~~Significant~~results ~~Accounting Policies~~for 2008,” in2007, and 2006, the ~~notes~~reconciliation toof ~~our~~the ~~consolidated~~loss ~~financial~~from ~~statements~~continuing inoperations ~~Part II,~~to ~~Item 8.~~earnings ~~The preparation~~before ofinterest, ~~our~~taxes, ~~consolidated~~depreciation, ~~financial~~and ~~statements~~amortization in(“EBITDA”) ~~conformity~~for ~~with~~those ~~U.S.~~periods, ~~generally~~and ~~accepted accounting~~the ~~principles~~reconciliation ~~requires~~of usEBITDA to ~~make~~net ~~estimates~~cash ~~and~~provided ~~assumptions~~or ~~that~~used ~~affect~~by ~~the~~our ~~reported amounts~~operating ofactivities ~~assets~~for ~~and~~those ~~liabilities~~periods. ~~and~~The ~~the~~term ~~reported~~EBITDA, ~~amounts~~as ofused ~~revenues~~by ~~and~~us, ~~expenses~~does ~~during~~not ~~each reporting~~include ~~period.~~reorganization ~~Actual~~items, ~~results~~which ~~could~~are ~~differ~~reflected ~~from~~as ~~those~~“other ~~estimates.~~expense” ~~The significant estimates included~~ in the ~~preparation~~consolidated statements of ~~our~~operations. ~~financial~~EBITDA ~~statements~~is ~~are~~not ~~related~~a tomeasure ~~valuation~~ of ~~accounts receivable,~~performance ~~inventories,~~under ~~long-lived~~U.S. ~~assets,~~generally ~~and~~accepted ~~goodwill~~accounting ~~and~~principles ~~estimates~~(“GAAP”). ~~related~~We tohave ~~the~~presented ~~determination of~~EBITDA ~~liabilities~~here ~~for~~and ~~environmental~~elsewhere ~~matters,~~in ~~litigation,~~this ~~product~~Form ~~liability~~10-K ~~matters,~~for ~~income~~the ~~taxes,~~following ~~and other~~reasons: ~~contingencies.~~

~~We believe that the most critical accounting policies inherent in the preparation of our consolidated financial statements are the following:~~ 1.

~~Valuation~~Investors ofand ~~Accounts~~lenders ~~Receivable~~frequently look at EBITDA when evaluating a company’s ability to satisfy interest and ~~Provision~~principal ~~for~~obligations ~~Credit~~with ~~Losses~~ respect to its outstanding indebtedness;

~~We record accounts receivable due from our customers at the time a sale is recorded in accordance with our revenue recognition policy~~2. We operate primarily in the domestic automotive market, which has been characterized by intense price competition and increasing customer requirements for quality and service. These factors, among others, may have a sudden and adverse effect on the operating results and financial condition of specific customers, and, in turn, on the collectibility of our accounts receivable from those customers. We attempt to mitigate this risk of loss through ongoing evaluations of automotive market conditions, examinations of financial statements of our customers, and discussions with management of our customers, as deemed necessary. Provisions for credit losses are based upon historical experience and such ongoing evaluations. We generally do not require collateral from our customers to support the extension of trade credit.

~~Valuation~~Management uses EBITDA as a supplemental measure to evaluate the operating performance of ~~Inventory~~ our business and believes that it provides a useful measure for comparing period to period performance among our business units because it does not include period to period fluctuations in taxes, interest costs, costs associated with capital investments, and certain non-operating items; and

~~Inventory is valued at the lower of cost (first-in, first-out method) or market~~3. We evaluate our inventory on a quarterly basis to ensure that it is properly valued. We record allowances against inventory where appropriate to provide for losses due to obsolescence, lower of cost or market valuations, excess quantities on hand, and certain other factors. In doing so, we apply consistent practices, which include the identification of potentially unmarketable inventory based on assumptions about future demand and historical usage rates, specific identification of components that are being replaced with new generation components, and actual margins generated from the sales of our components.

~~-35-~~ Certain financial covenants in our senior, secured credit agreements have been calculated using variations of EBITDA.

~~Table~~EBITDA has material limitations when used as a measurement of ~~Contents~~performance, including the following:

~~Valuation of Long-Lived Assets other than Goodwill~~ 1.

WeEBITDA ~~evaluate~~excludes ~~for~~interest ~~impairment~~expense. ~~our~~Cash ~~plant~~interest ~~and~~payments ~~equipment~~represent ~~and~~a ~~other~~reduction ~~long-term, amortizable assets when events or changes~~ in ~~circumstances~~cash ~~indicate~~available ~~that~~to ~~the~~us, ~~carrying~~and ~~value~~accruals offor ~~the~~interest ~~assets~~expense ~~may~~represent ~~not~~an ~~be fully~~obligation ~~recoverable. Changes in technology or in our use of these assets may cause the original estimated useful lives of these assets~~ to ~~change~~pay ~~and~~cash ~~result~~interest in the ~~impairment of these assets~~future.

~~To perform our impairment evaluation, we compare the undiscounted projected cash flow of an asset or group of assets to the carrying value thereof~~2. If the projected cash flow is less than the carrying value of the asset or asset group, we recognize an impairment loss equal to the excess, if any, of the carrying value of the asset or asset group over its appraised fair value, net of estimated disposal costs. Although we believe that our estimates of future cash flows are reasonable, changes in unit sales, pricing, cost of goods sold, and other factors could significantly affect our cash flow projections.

~~Valuation~~EBITDA excludes provisions for taxes. Cash payments of ~~Goodwill~~ taxes represent a reduction in cash available to us, and accruals for non-cash taxes represent an obligation to pay cash taxes in the future.

~~At December 31, 2007 and 2006, our unamortized goodwill totaled $7,623,000, which related entirely to the Rubber Group~~3. At December 31, 2007, the assets of the Rubber Group, exclusive of goodwill, totaled $34,613,000. In 2007, EBITDA of the Rubber Group was $13,702,000. Tests for impairment of goodwill are performed using a fair value approach during the fourth quarter of each year and at other times when events or changes in circumstances indicate possible impairment.

InEBITDA ~~connection~~excludes ~~with~~depreciation ~~our efforts to refinance or restructure our indebtedness during 2007, we pursued a possible sale of the assets~~ and ~~business~~amortization ofrelated ~~the Rubber Group and, with the assistance of W.Y. Campbell & Company, prepared an offering memorandum. During the summer and fall of 2007, we distributed the offering memorandum~~ to ~~a number of interested parties~~buildings, ~~including both financial and strategic purchasers~~equipment, and, ~~during the fourth quarter of 2007, we received several offers to purchase all or portions of the assets of the Rubber Group~~tooling. AsAlthough adepreciation ~~result,~~and ~~during~~amortization ~~2007,~~are wenon-cash ~~tested our goodwill for impairment by comparing the values implied by the various offers for all or portions of the Rubber Group’s business. Based on our analysis~~charges, wethey ~~determined~~represent ~~that~~ the ~~fair~~using ~~value of the Rubber Group’s assets exceeded the carrying value of those assets by an amount substantially in excess of the goodwill~~up, ~~and, consequently, the goodwill related to the Rubber Group was not deemed to be impaired.~~

~~Revenue~~- ~~Recognition~~ 20 -

~~All~~over ofa ~~our~~projected ~~revenues~~period, ~~result from the sale~~ of ~~rubber~~assets ~~and~~that ~~metal~~produce ~~components and mixed rubber compounds. We recognize~~ revenue ~~from the sale of these items when title and risk of loss pass to our customers according to shipping schedules and terms of sale mutually agreed to by us and our customers~~. ~~Shipping~~EBITDA ~~and~~does ~~handling~~not ~~costs~~reflect ~~are typically paid by~~ the ~~customer.~~capital Ifexpenditures ~~paid~~required ~~by us, shipping and handling costs are included in cost of sales. Accruals~~ for ~~sales returns and certain other sales allowances are recorded at~~ the ~~time~~replacement of ~~shipment based primarily on historical experience;~~ these ~~accruals~~depreciated ~~may be adjusted subsequent to the date of shipment as new information becomes available~~assets.

~~Other~~ 4.

~~Other~~EBITDA ~~critical~~does ~~accounting~~not ~~policies~~reflect ~~include~~reorganization ~~estimates~~items, ~~used~~which, pursuant to ~~determine~~American ~~liabilities~~Institute ~~related~~of ~~to environmental~~Certified ~~matters,~~Public ~~litigation,~~Accountants ~~product~~Statement ~~liability~~of ~~matters,~~Position ~~self~~90-~~insurance~~7, ~~income~~“Financial ~~taxes,~~Reporting ~~and other~~by ~~contingencies.~~Entities ~~The~~in ~~process~~Reorganization ofUnder ~~making~~the ~~estimates~~Bankruptcy ~~takes~~Code,” ~~into~~(“SOP ~~account~~90-7”), ~~historical~~represent ~~experience~~revenues, ~~specific~~ ~~facts~~expenses, realized gains and ~~circumstances~~losses, ~~present~~ and ~~projected~~provisions ~~economic~~for ~~and~~losses ~~business~~that ~~conditions,~~can ~~projected unit~~be ~~volumes,~~directly ~~projected~~associated ~~operating~~with ~~efficiencies,~~the reorganization and ~~other~~restructuring ~~relevant~~of ~~factors~~our ~~and~~business ~~assumptions~~under chapter 11. ~~We reevaluate~~Reorganization ~~our~~items ~~estimates~~that ~~whenever~~are ~~factors~~expenses ~~relevant~~represent a reduction in cash available to ~~the~~us, ~~making~~either ofcurrently ~~the~~or ~~estimates~~in ~~change~~the future.

~~-36-~~ 5.

~~Table~~EBITDA does not reflect cash provided or used as a result of ~~Contents~~changes in our working capital.

~~Recently Issued Accounting Standards~~ 6.

~~Listed~~Our ~~below~~definition ~~are~~of ~~recently~~EBITDA ~~issued~~may ~~accounting~~not ~~standards~~be ~~and~~the asame ~~discussion~~as the definition of ~~how~~EBITDA ~~they~~used ~~have affected~~by orother ~~will~~companies, ~~affect~~including companies in our ~~consolidated~~industry; as the number of differences in the definition of EBITDA increases, the usefulness of EBITDA as a comparative measure decreases. The definition of EBITDA used here is different from the definition of EBITDA used to calculate compliance with the financial ~~statements:~~ covenants in the loan agreements that governed our senior, secured credit facility prior to our filing of a voluntary petition for relief under chapter 11 of title 11 of the United States Code on April 1, 2008.

~~Statement~~To compensate for the shortcomings of ~~Financial~~EBITDA ~~Accounting~~as ~~Standards~~a Nofinancial measure, it is important to use financial data derived under GAAP when analyzing our financial performance. ~~160~~ EBITDA should not be considered to be a substitute for the following GAAP measures: gross profit, ~~“Noncontrolling~~income ~~Interests~~from ~~in Consolidated~~operations, ~~Financial~~net ~~Statements~~income, —or annet ~~Amendment~~cash ofprovided ~~ARB~~from Nooperating activities. ~~51”~~

~~In December 2007, the Financial Accounting Standards Board~~ (~~“FASB”)~~THIS ~~issued~~SPACE ~~Statement~~INTENTIONALLY ~~of Financial~~LEFT ~~Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51 (“FAS 160”~~BLANK). FAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS 160 is effective for fiscal years beginning on or after December 15, 2008. Based on our current operations, we do not believe that FAS 160 will have a significant impact on our results of operations or financial position.

~~Statement~~- of21 ~~Financial Accounting Standards No. 141 (Revised 2007), “Business Combinations”~~ -

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141R”). FAS 141R establishes the principles and requirements for how the acquirer of a business shall recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest in the acquiree. FAS 141R also sets forth guidance on how to recognize and measure goodwill acquired in a business combination or a gain from a bargain purchase and determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of the business combination. FAS 141R is effective for fiscal years beginning after December 15, 2008. Based on our current operations, we do not believe that FAS 141R will have a significant impact on our results of operations or financial position.

	Years Ended December 31
	2008					2007					2006
Net sales	$	73,029		100.0	%	$	88,408		100.0	%	$	87,901		100.0	%
Cost of sales		63,107		86.4			76,529		86.6			77,159		87.8
Gross profit		9,922		13.6			11,879		13.4			10,742		12.2
Selling and administrative expenses (1) (2)		6,685		9.2			7,204		8.1			6,658		7.6
Income from operations		3,237		4.4			4,675		5.3			4,084		4.6
Other expense:
Interest expense		(8,726	)	(11.9	)		(11,339	)	(12.8	)		(10,943	)	(12.4	)
Reorganization items, net		(4,540	)	(6.2	)		—		—			—		—
Loss before income taxes		(10,029	)	(13.7	)		(6,664	)	(7.5	)		(6,859	)	(7.8	)
Income tax provision		35		0.1			6		—			18		—
Loss from continuing operations		(10,064	)	(13.8	)		(6,670	)	(7.5	)		(6,877	)	(7.8	)
Add back:
Depreciation and amortization (3)		5,333		7.3			6,437		7.3			7,295		8.3
Interest expense		8,726		11.9			11,339		12.8			10,943		12.4
Reorganization items, net		4,540		6.2			—		—			—		—
Income tax provision		35		0.1			6		—			18		—
EBITDA		8,570		11.7			11,112		12.6			11,379		12.9
Adjustments to reconcile EBITDA to net cash provided by operating activities:
Interest expense		(8,726	)	(11.9	)		(11,339	)	(12.8	)		(10,943	)	(12.4	)
Reorganization items, net		(4,540	)	(6.2	)		—		—			—		—
Amortization and write-off of deferred financing expenses included in interest expense		251		0.3			1,249		1.4			3,078		3.5
Income tax provision		(35	)	(0.1	)		(6	)	—			(18	)	—
Change in accrued reorganization items, net		1,168		1.6			—		—			—		—
Change in operating assets and liabilities		7,432		10.2			4,420		5.0			(940	)	(1.1	)
Net cash provided by operating activities	$	4,120		5.6	%	$	5,436		6.2	%	$	2,556		2.9	%
Net cash used by investing activities	$	(2,847	)	(3.9	)%	$	(2,741	)	(3.1	)%	$	(2,628	)	3.0	%
Net cash provided (used) by financing activities	$	4,093		5.6	%	$	(2,333	)	(2.6	)%	$	621		0.7	%

~~Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”~~ (1)

InDuring ~~February 2007~~2008, ~~the~~prior ~~FASB~~to ~~issued~~our ~~Statement~~filing of ~~Financial~~chapter ~~Accounting~~11 ~~Standards~~on ~~No. 159~~April 1, ~~“The Fair~~2008, ~~Value Option for Financial Assets~~ and ~~Financial~~during ~~Liabilities”~~2007, ~~(“FAS~~we ~~159”).~~incurred ~~FAS~~$508,000 ~~159 permits entities to choose to measure many financial instruments~~ and ~~certain~~$698,000, ~~other~~respectively, ~~items~~of atexpenses ~~fair~~incurred ~~value~~in ~~that are~~connection ~~not~~with ~~currently~~our ~~required~~efforts to berestructure, measured at fair value. FAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between entities that choose different measurements for similar types of assets and liabilities. FAS 159 is effective for fiscal years beginning after November 15refinance, ~~2007.~~or Werepay ~~are currently evaluating the effect the adoption of FAS 159 will have on~~ our ~~results of operations and financial position~~indebtedness.

~~Statement~~- of22 ~~Financial Accounting Standards No. 157, “Fair Value Measurements”~~ -

~~In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”~~ (~~“FAS 157”~~2). FAS 157 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles, and expands disclosures about fair value. FAS 157 also provides for increased consistency and comparability in fair value measurements. FAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does

Selling and administrative expenses for 2008 includes $488,000 of one-~~37-~~ time fees and expenses, related to the services of a consulting firm that was retained to assist us with the upgrading of the operating systems and manufacturing procedures and controls at our facility in Rock Hill, South Carolina, where we manufacture rubber components used in medical devices.

~~Table of Contents~~(3)

Does not ~~require~~include ~~new~~the ~~fair~~amortization ~~value measurements,~~ and iswrite-off ~~effective~~of ~~for~~deferred ~~fiscal~~financing ~~years beginning after November 15~~expenses, ~~2007,~~which ~~and~~totaled ~~for interim periods within those fiscal years. In December 2007~~$251, ~~the FASB issued FSP FAS 157-b to~~000, ~~if adopted~~$1,249,000, ~~delay the effective date of FAS 157 for all nonfinancial assets~~ and ~~liabilities~~$3, ~~except those that are recognized or disclosed~~078, ~~at least annually~~000, ~~at fair value~~ in ~~the~~2008, ~~financial~~2007, ~~statements.~~and ~~We are currently assessing the impact~~2006, ~~if any~~respectively, ~~that~~and ~~FAS~~which ~~157~~is ~~will have~~included onin ~~our~~interest ~~results~~expense ofin ~~operations~~the ~~and~~consolidated financial ~~position~~statements.

~~Financial~~Net ~~Accounting~~sales ~~Standards~~by ~~Board~~the ~~Interpretation~~type ~~No. 48~~of product in which our components were utilized during 2008, ~~“Accounting~~2007, ~~for~~and ~~Uncertainty~~2006, are set forth below (dollar amounts in ~~Income~~ ~~Taxes”~~ thousands):

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes,” (“FAS 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FAS 109 by prescribing a minimum recognition threshold that a tax position must meet before being recognized in financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and transition. FIN 48 was effective for fiscal years beginning after November 15, 2006, and was therefore effective for us on January 1, 2007. Adoption of FIN 48 did not affect our results of operations or financial position. We are subject to federal taxation in the United States and to state income tax in various states. We remain subject to examination by United States federal taxing authorities and to state taxing authorities for the years 2004 through 2006 and for any years prior to 2004 if, in the future, we use operating loss carryforwards from any year prior to 2004 to affect current-period taxable income. Although we do not anticipate that our income tax liabilities would significantly increase or decrease upon audit, actual results could differ from our estimates.

	Years Ended December 31
	2008				2007				2006
Automotive — OEM	$	26,770	36.7	%	$	42,850	48.5	%	$	44,626	50.8	%
Automotive — aftermarket		26,569	36.4			25,786	29.2			27,906	31.7
Medical		16,300	22.3			15,928	18.0			11,039	12.6
Industrial and residential equipment and devices		2,486	3.4			2,836	3.2			3,168	3.6
Other		904	1.2			1,008	1.1			1,162	1.3
Total net sales	$	73,029	100.0	%	$	88,408	100.0	%	$	87,901	100.0	%

~~Item 7A~~Our net sales for 2008 declined by $15,379,000, or 17.4%, ~~QUANTITATIVE~~compared ~~AND~~to ~~QUALITATIVE~~2007. ~~DISCLOSURES~~The ~~ABOUT~~decrease ~~MARKET~~in ~~RISK~~ net sales was primarily the result of a 37.5% decrease in net sales of automotive components used by original equipment manufacturers (OEMs), primarily connector seals used in automotive wiring systems, offset, in part, by increased net sales of automotive aftermarket components and components for medical devices.

WeEBITDA dofor ~~not~~2008 ~~invest~~was in$8,570,000, or ~~trade~~11.7% ~~market~~of ~~risk~~net ~~sensitive~~sales, ~~instruments~~compared to EBITDA of $11,112,000, or 12.6% Weof ~~also~~net dosales, ~~not~~for ~~have~~2007. ~~any foreign~~The ~~operations~~change in EBITDA reflected a $2,260,000 decrease in EBITDA at the Rubber Group, a $695,000 decrease in EBITDA at the Metals Group, and a $413,000 increase in EBITDA at the Corporate Office. Excluding the $508,000 of expenses incurred in connection with our efforts to restructure, refinance, or ~~any~~repay ~~significant~~our ~~amount~~indebtedness during 2008, prior to our filing of ~~foreign~~chapter ~~sales~~11, and the $488,000 ~~therefore~~of one-time fees incurred to upgrade operating systems at our manufacturing facility in Rock Hill, weSouth ~~believe~~Carolina, ~~that~~EBITDA was $9,566,000, or 13.1% of net sales. Excluding the $698,000 of expenses incurred in connection with our ~~exposure~~ efforts to ~~foreign~~restructure, ~~currency~~refinance, ~~exchange~~or ~~rate~~repay ~~risk~~our isindebtedness ~~insignificant~~during 2007, EBITDA was $11,810,000, or 13. 4% of net sales.

AtNet ~~December 31,~~cash ~~2007,~~provided weby ~~had~~our aoperating ~~total~~activities ofduring 2008 totaled $334,~~821~~120,000 ~~of floating rate debt outstanding at interest rates equal to either the London Interbank Offered Rate (“LIBOR”) or the prime rate plus a fixed premium. Currently~~, wecompared ~~do not purchase derivative financial instruments~~ to ~~hedge~~net orcash ~~reduce our~~provided ~~interest~~by ~~rate~~operating ~~risk.~~activities Asof ~~a result~~$5,436,000 ~~changes~~for ~~in either LIBOR or the prime rate affect the rates at which we borrow funds under these agreements~~2007.

AtOur ~~December 31,~~net sales for 2007, weincreased ~~had~~by $35507,~~270,~~000, or 0.6%, compared to 2006. The increase in net sales was principally a result of ~~fixed-rate~~increased ~~debt~~unit ~~outstanding~~sales ~~with~~of metal components and of rubber components used in medical devices, offset, by a ~~weighted-average~~ ~~interest~~decrease ~~rate~~in net sales of 15automotive components used by OEMs, primarily connector seals used in automotive wiring systems.~~7%.~~

~~Assuming~~EBITDA ~~that~~for ~~our~~2007 ~~subordinated~~was ~~debt~~$11,112,000, ~~and~~or ~~our~~12.6% ~~secured~~of ~~debt~~net ~~were~~sales, ~~outstanding~~compared ~~for~~to ~~all~~EBITDA of ~~2008~~$11,379,000, ~~and that~~or we12.9% ~~accrued~~of ~~and~~net ~~paid interest during 2008 at the specified contractual rates (no default premiums)~~sales, wefor ~~currently~~2006. ~~estimate~~The ~~that~~change ~~our~~in ~~average~~EBITDA ~~monthly~~reflected ~~cash~~a ~~interest expense during 2008 would be approximately~~ $~~663~~915,000 ~~and that a one percentage point~~ increase ~~or decrease~~ in ~~both~~EBITDA ~~LIBOR~~at ~~and~~ the ~~prime rate would increase or decrease our monthly interest expense by approximately $29,000.~~

~~For~~- ~~further~~23 ~~information about our indebtedness, we recommend that you also read Note 4, “Debt,” in the notes to our consolidated financial statements in Part II, Item 8.~~ -

~~-38-~~ Metals Group, a $395,000 decrease in EBITDA at the Rubber Group, and a $787,000 decrease in EBITDA at the Corporate Office.

~~Table~~Net cash provided by our operating activities during 2007 totaled $5,436,000, compared to net cash provided by operating activities of ~~Contents~~$2,556,000 for 2006. For more information about the net cash provided by our operating activities, please refer to the consolidated statements of cash flows in Part II, Item 8, and to the section titled “Operating Activities” in this Part II, Item 7.

~~THIS~~The ~~PAGE~~discussion ~~INTENTIONALLY~~that ~~LEFT~~follows ~~BLANK~~ sets forth our analysis of the operating results of the Rubber Group, the Metals Group, and the Corporate Office for 2008, 2007, and 2006.

~~-39-~~ Rubber Group

~~Table~~The Rubber Group manufactures tight-tolerance rubber components. The Rubber Group’s primary products are insulators used in both aftermarket and OEM automotive ignition-wire sets, connector seals used in automotive wiring systems, and molded rubber components used in a variety of ~~Contents~~medical devices, such as intravenous medication-delivery systems, syringes, and laparoscopic surgical equipment.

~~Item 8.~~The ~~FINANCIAL~~following ~~STATEMENTS~~table ~~AND~~sets ~~SUPPLEMENTARY~~forth ~~DATA~~ the operating results of the Rubber Group for 2008, 2007, and 2006 and the reconciliation of the Rubber Group’s income from operations to its EBITDA (dollar amounts in thousands):

Table of Contents

	Years Ended December 31
	2008				2007				2006
Net sales	$	62,278	100.0	%	$	74,587	100.0	%	$	76,090	100.0	%
Cost of sales		52,173	83.8			63,039	84.5			64,772	85.1
Gross profit		10,105	16.2			11,548	15.5			11,318	14.9
Selling and administrative expenses (1)		3,409	5.5			3,573	4.8			3,676	4.9
Income from operations		6,696	10.8			7,975	10.7			7,642	10.0
Add back: depreciation and amortization		4,746	7.6			5,727	7.7			6,455	8.5
EBITDA	$	11,442	18.4	%	$	13,702	18.4	%	$	14,097	18.5	%

		Page
Report of Malin, Bergquist & Company, LLP, Independent Registered Public Accounting Firm (2007)		41
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (2006 and 2005)		42
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005		43
Consolidated Balance Sheets at December 31, 2007 and 2006		44
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2007, 2006, and 2005		46
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005		47
Notes to Consolidated Financial Statements		48

(1)

Selling and administrative expenses for 2008 includes $488,000 of one-~~40-~~ time fees and expenses, related to the services of a consulting firm that was retained to assist us with the upgrading of the operating systems and manufacturing procedures and controls at our facility in Rock Hill, South Carolina, where we manufacture rubber components used in medical devices.

~~Table~~- of24 ~~Contents~~-

~~REPORT~~Net OFsales ~~INDEPENDENT~~by ~~REGISTERED~~the ~~PUBLIC~~type ~~ACCOUNTING~~of ~~FIRM~~ product in which our components were utilized during 2008, 2007, and 2006, are set forth below (dollar amounts in thousands):

To the Board of Directors and Stockholders of Lexington Precision Corporation and Subsidiary

	Years Ended December 31
	2008				2007				2006
Automotive — aftermarket	$	26,569	42.7	%	$	25,786	34.6	%	$	27,906	36.7	%
Automotive — OEM		18,006	28.9			31,255	41.9			35,138	46.2
Medical		16,300	26.2			15,928	21.4			11,039	14.5
Industrial		851	1.4			971	1.3			1,176	1.5
Other		552	0.8			647	0.8			831	1.1
Total net sales	$	62,278	100.0	%	$	74,587	100.0	%	$	76,090	100.0	%

WeDuring ~~have~~2008, ~~audited~~net sales of the ~~accompanying~~Rubber ~~consolidated~~Group ~~balance~~decreased ~~sheet~~by of$12,309,000, ~~Lexington~~or ~~Precision~~16.5%, ~~Corporation and~~compared ~~subsidiary~~to as2007. ofDuring ~~December 31~~2008, ~~2007,~~net ~~and~~sales ~~the~~of ~~related~~aftermarket ~~consolidated~~automotive ~~statements~~components ofincreased ~~operations~~by $783, ~~stockholders’~~000, ~~deficit~~or 3.0%, to $26,569,000, and ~~cash~~net ~~flows~~sales of components for ~~the~~use ~~year~~in ~~then~~medical ~~ended~~devices increased by $372,000, or 2.3%, ~~Our~~to ~~audit~~$16,300,000. ~~also~~These ~~included~~increases ~~the financial~~were ~~statement~~offset ~~schedule~~by ~~listed~~a reduction in ~~the~~net ~~Index~~sales atof ~~Item 15(a)~~components for use in automotive OEM applications by $13,249,000, or 42.4%, ~~Lexington~~to ~~Precision~~$18,006,000. ~~Corporation’s management~~This isreduction ~~responsible~~was ~~for~~primarily ~~these~~caused ~~consolidated~~by ~~financial~~production ~~statements~~cutbacks by North American automobile manufacturers and ~~schedule~~related inventory reductions throughout the supply chain during 2008. ~~Our responsibility~~The isthree tolargest ~~express~~customers anof ~~opinion~~the onRubber ~~these~~Group ~~consolidated~~accounted ~~financial~~for ~~statements~~36.9%, 30.5%, and ~~schedule based~~36.5%, onof ~~our~~the ~~audit~~Rubber Group’s net sales during 2008, 2007, and 2006, respectively.

WeCost ~~conducted~~of ~~our~~sales ~~audit~~as ina ~~accordance~~percentage ~~with the standards~~ of ~~the~~net ~~Public~~sales ~~Company~~decreased ~~Accounting Oversight~~to ~~Board (United States)~~83.8% ~~Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free~~ of ~~material misstatement.~~net ~~The~~sales ~~Company~~during ~~is not required to have~~2008, ~~nor~~compared ~~were we engaged~~ to ~~perform, an audit of its internal control over financial reporting~~84.5% ~~Our audit included consideration~~ of ~~internal~~net ~~control over~~sales ~~financial~~during ~~reporting as a basis for designing audit procedures that are appropriate in the circumstances~~2007, ~~but~~primarily ~~not~~due ~~for~~to ~~the~~improved ~~purpose~~labor ~~of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly~~efficiencies, welower ~~express~~employee nobenefit ~~such opinion. An audit also includes examining~~expenses, onimproved aproduct ~~test basis~~mix, ~~evidence~~and ~~supporting~~lower ~~the~~depreciation ~~amounts~~ and ~~disclosures~~amortization ~~in the~~expenses ~~financial statements~~offset, ~~assessing~~in ~~the~~part, ~~accounting principles used and significant estimates made~~ by ~~management, and evaluating~~ the ~~overall~~underabsorption ~~financial~~of ~~statement~~fixed ~~presentation.~~or Wepartially ~~believe~~fixed ~~that~~costs ~~our audit~~during ~~provides~~ a ~~reasonable~~period ~~basis~~of ~~for~~reduced ~~our~~sales ~~opinion~~volume.

InSelling ~~our~~and ~~opinion,~~administrative expenses of the ~~consolidated~~Rubber ~~financial~~Group ~~statements~~decreased ~~referred~~by $164,000, or 4.6% during 2008, compared to ~~above~~2007. ~~present~~During ~~fairly~~2008, inwe ~~all material~~incurred ~~respects~~$488,000 of one-time fees and expenses, related to the ~~consolidated~~services ~~financial~~of ~~position~~a consulting firm that was retained to assist us with the upgrading of ~~Lexington~~the ~~Precision~~operating ~~Corporation~~systems and ~~subsidiary~~ asmanufacturing ofprocedures ~~December 31~~and controls at our facility in Rock Hill, ~~2007~~South Carolina, ~~and~~where ~~the~~we ~~consolidated~~manufacture ~~results~~rubber ofcomponents ~~their~~used ~~operations~~in ~~and~~medical ~~their~~devices. ~~cash flows~~We ~~for~~currently estimate that the ~~year~~annual ~~then~~savings ~~ended,~~resulting infrom ~~conformity~~the ~~with~~project Uwill be approximately $1,250,000.S. ~~generally~~Selling ~~accepted~~and ~~accounting~~administrative ~~principles~~expenses expressed as a percentage of net sales increased to 5. ~~Also,~~5% inof ~~our~~net ~~opinion~~sales during 2008, ~~the~~compared ~~related~~to ~~financial~~4.8% ~~statement~~during ~~schedule~~2007. Excluding the $488,000 ~~when~~of ~~considered~~one-time fees and expenses in ~~relation~~2008, toselling ~~the basic~~and ~~financial~~administrative ~~statements~~expenses ~~taken~~expressed as a ~~whole,~~percentage ~~presents~~of ~~fairly~~net insales ~~all~~was ~~material~~4.7% ~~respects~~of ~~the information~~net ~~set forth therein~~sales.

~~The~~During ~~accompanying~~2008, ~~consolidated~~the ~~financial~~Rubber ~~statements~~Group’s ~~have~~income ~~been~~from ~~prepared~~operations ~~assuming~~totaled ~~that~~$6,696,000, ~~Lexington Precision Corporation and subsidiary will continue as~~ a ~~going~~decrease ~~concern.~~of ~~As more fully described in Notes~~ $1 ~~and 4~~, ~~on April 1~~279, ~~2008~~000, ~~Lexington~~or ~~Precision Corporation and Lexington Rubber Group, Inc~~16. ~~(collectively~~0%, ~~the~~compared ~~“Debtors”)~~to ~~filed~~2007. ~~voluntary~~The ~~petitions~~Rubber Group’s ~~seeking~~EBITDA ~~reorganization~~for ~~relief~~2008 ~~under~~was ~~the provisions~~$11,442,000, ofor ~~chapter~~18.4% 11 of ~~the~~net ~~United~~sales, ~~States~~compared ~~Bankruptcy~~to ~~Code~~$13,702,000, ~~(“Bankruptcy~~or ~~Code”)~~18.4% ~~and~~of ~~its continuation~~net assales, afor ~~going~~2007. ~~concern~~Excluding isthe ~~contingent upon~~$488,000 ~~among~~of ~~other~~fees ~~things,~~and ~~the~~expenses ~~Debtors~~related ~~ability (i)~~ to ~~comply~~ ~~with~~ the ~~terms~~services ~~and conditions~~ of the ~~debtors-in-possession~~consulting ~~financing arrangements; (ii) to~~firm ~~obtain~~that ~~confirmation~~we ofretained afor ~~plan of reorganization under~~ the ~~Bankruptcy~~project ~~Code;~~in ~~(iii) to~~Rock ~~generate sufficient~~Hill ~~cash~~during ~~flow~~2008, income from operations tototaled ~~fund working capital~~$7,184,000, ~~capital~~or ~~expenditures~~11.5% ~~and~~of ~~debt~~net ~~service requirements~~sales, and; ~~(iv) to~~EBITDA ~~obtain~~was ~~financing~~$11,930,000, ~~sources~~or ~~to meet future obligations~~19.2% ~~These~~of ~~matters~~net ~~raise substantial doubt about the Company’s ability to continue as a going concern~~sales. ~~Management’s~~The ~~plans~~decrease in ~~regard~~ toEBITDA ~~these~~at ~~matters~~our ~~are~~Rubber ~~also described in Note 1. The accompanying consolidated financial~~Group ~~statements~~during do2008 ~~not~~compared ~~include any adjustments relating~~ to ~~the~~2007, ~~recoverability~~resulted ~~and~~from ~~classification~~a ~~of asset~~reduction ~~carrying~~in ~~amounts~~net orsales ~~the~~to ~~amount~~automotive ~~and~~OEM ~~classification of liabilities that may result from the outcome of this uncertainty~~customers.

~~/s/~~During ~~Malin~~the second half of 2008, ~~Bergquist~~we &experienced ~~Company~~a dramatic downturn in automotive original equipment volume, ~~LLP~~ which resulted in operating losses at our connector-seal facility located in Vienna, Ohio. Because of these losses and because we do not believe that it will be possible to return this facility to an adequate level of profitability in the foreseeable future, during the first quarter of 2009, we decided to close this facility and move the production to our other rubber molding facilities. We currently

~~Malin,~~- ~~Bergquist~~25 ~~& Company, LLP Pittsburgh, Pennsylvania May 15, 2008~~ -

anticipate that the shutdown of the Vienna facility will be substantially completed by June 30, 2009, and that the cost to restructure our connector-41seal business will be approximately $1,082,000, which we expect to incur during the second and third quarters of 2009. This estimated cost consists of (1) $555,000 for employee related expenses, including, special incentive compensation, severance, and other costs, (2) $422,000 for moving and installation of manufacturing equipment, and (3) $105,000 for start-up expenses. Although we cannot assure you, we currently believe, based on appraised values, that we will sell the Vienna, Ohio, manufacturing facility and certain ancillary manufacturing equipment that we are not planning to move to our other rubber molding facilities, at an amount that, in the aggregate, is in excess of the carrying value of these assets. Compared to 2008, we currently project that the restructuring of the connector-seal business will increase the EBITDA of the connector-seal business by approximately $2,500,000 in 2010.

~~Table~~During 2007, total net sales of ~~Contents~~the Rubber Group decreased by $1,503,000, or 2.0%, compared to 2006. Net sales to OEM automotive customers decreased by $3,883,000, or 11.1%, to $31,255,000 net sales of aftermarket automotive products decreased by $2,120,000, or 7.6%, to $25,786,000, net sales to medical device manufacturers increased by $4,889,000, or 44.3%, to $15,928,000, and all other net sales decreased by $389,000, or 19.4%, to $1,618,000.

~~REPORT~~The OFincrease ~~ERNST~~in &net ~~YOUNG~~sales ~~LLP,~~of ~~INDEPENDENT~~medical ~~REGISTERED PUBLIC~~components ~~ACCOUNTING~~was ~~FIRM~~ primarily due to the sale of components to a medical device manufacturer that began purchasing production parts from us in January of 2007.

The ~~Board~~decrease in net sales to automotive customers was primarily due to decreased unit sales to original equipment manufacturers of ~~Directors~~connector seals for automotive wire harnesses, components for use in automotive computer control modules, and ~~Stockholders Lexington~~insulators ~~Precision~~for ~~Corporation~~automotive ignition-wire sets, which we believe resulted primarily from production cutbacks by Detroit-based automakers, and ~~Subsidiaries~~ decreased unit sales of insulators to manufacturers of aftermarket automotive ignition-wire sets primarily due to the decision of a large customer to reduce their on-hand inventory.

WeCost ~~have audited the accompanying consolidated balance sheet~~ of ~~Lexington~~sales ~~Precision Corporation and subsidiaries~~ as ofa ~~December 31,~~percentage ~~2006, and the related consolidated statements~~ of ~~operations, stockholders’~~net ~~deficit,~~sales ~~and~~decreased ~~cash~~to ~~flows~~84.5% ~~for each~~ of ~~the~~net ~~two~~sales ~~years~~during ~~in the period ended December 31~~2007, ~~2006.~~ ~~Our~~compared ~~audits~~to ~~also included the data for 2006 and 2005 appearing on the financial statement schedule listed in the Index at Item 15 (a)~~85.1% ~~These consolidated financial statements and schedule are the responsibility~~ of ~~the~~net ~~Company’s~~sales ~~management.~~during ~~Our~~2006, ~~responsibility~~primarily isdue to ~~express~~improved anproduct ~~opinion~~mix, ~~on these~~lower ~~consolidated~~depreciation ~~financial~~and ~~statements~~amortization expense, and ~~schedule~~lower ~~based~~employee onbenefit ~~our audits~~expenses.

We Selling ~~conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan~~ and ~~perform~~administrative ~~the~~expenses ~~audit to obtain reasonable assurance about whether the financial statements are free~~ of ~~material misstatement. We were not engaged to perform an audit of~~ the ~~Company’s~~Rubber ~~internal~~Group ~~control~~expressed ~~over financial reporting. Our audit included consideration of internal control over financial reporting~~ as a ~~basis~~percentage ~~for designing audit procedures that are appropriate in the circumstances, but not for the purpose~~ of ~~expressing~~net ansales ~~opinion~~decreased onto ~~the~~4.8% ~~effectiveness~~ of ~~the~~net ~~Company’s~~sales ~~internal~~during ~~control over financial reporting. Accordingly~~2007, wecompared ~~express~~to ~~no such opinion~~4.9% Anduring ~~audit also includes examining~~2006, ~~on a~~primarily ~~test~~because ~~basis,~~of ~~evidence~~reduced ~~supporting~~employee ~~the~~wage ~~amounts~~ and ~~disclosures~~benefit ~~in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation~~expenses. ~~We believe that our audits provide a reasonable basis for our opinion.~~

InDuring ~~our opinion~~2007, ~~the~~income ~~consolidated~~from ~~financial~~operations ~~statements~~totaled ~~referred to above present fairly~~$7, ~~in all material respects~~975,000, ~~the~~an ~~consolidated~~increase ~~financial position~~ of ~~Lexington Precision Corporation and subsidiaries at December 31~~$333, ~~2006~~000, ~~and~~or ~~the~~4.4%, ~~consolidated~~compared ~~results~~to of2006. ~~their~~EBITDA ~~operations and their cash flows~~ for ~~each~~2007 ofwas ~~the two years in the period ended December 31~~$13, ~~2006~~702,000, inor ~~conformity with U~~18.~~S. generally~~4% ~~accepted~~of ~~accounting~~net ~~principles. Also~~sales, incompared ~~our~~to ~~opinion~~$14, ~~the data for 2006 and 2005 appearing on the related financial statement schedule~~097,000, ~~when~~or ~~considered~~18.5% inof ~~relation~~net ~~to the basic financial statements taken as a whole~~sales, ~~presents~~for ~~fairly in all material respects the information set forth therein~~2006.

~~The~~Metals ~~accompanying~~Group consolidated financial statements have been prepared assuming that Lexington Precision Corporation and subsidiaries will continue as a going concern. As more fully described in Notes 1 and 4, the Company failed to pay quarterly interest payments that were due on its Senior Subordinated Notes on November 1, 2006 and February 1, 2007, resulting in substantially all of the Company’s debt to be in default as of December 31, 2006. As of February 28, 2007, the Company failed to comply with a fixed charge coverage ratio covenant that is contained in its secured borrowing arrangements. On April 5, 2007, the Company was notified that the Company’s ability to borrow under its revolving line of credit would be terminated after May 7, 2007. On April 6, 2007, the Company received a notice of acceleration demanding immediate payment in full of a portion of the obligations due under its real estate term loan. Further, the Company has a working capital deficiency and a stockholders’ deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/The Metals Group manufactures machined metal components from aluminum, brass, steel, and stainless steel bars, forgings, and cold-headed blanks. The Metals Group’s/ ~~Ernst~~sales ~~&Young~~are ~~LLP~~ primarily to automotive OEMs.

~~Cleveland,~~- ~~Ohio April 12,~~26 ~~2007~~ -

~~-42-~~ The following table sets forth the operating results of the Metals Group for 2008, 2007, and 2006, and the reconciliation of the Metals Group’s loss from operations to its EBITDA (dollar amounts in thousands):

	Years Ended December 31
	2008					2007					2006
Net sales	$	10,751		100.0	%	$	13,821		100.0	%	$	11,811		100.0	%
Cost of sales		10,934		101.7			13,490		97.6			12,387		104.9
Gross profit (loss)		(183	)	(1.7	)		331		2.4			(576	)	(4.9	)
Selling and administrative expenses		558		5.2			523		3.8			669		5.6
Loss from operations		(741	)	(6.9	)		(192	)	(1.4	)		(1,245	)	(10.5	)
Add back: depreciation and amortization		536		5.0			682		4.9			820		6.9
EBITDA	$	(205	)	(1.9	)%	$	490		3.5	%	$	(425	)	(3.6	)%

~~LEXINGTON~~Net ~~PRECISION~~sales ~~CORPORATION AND~~by ~~SUBSIDIARY~~ the type of product in which our components were utilized during 2008, 2007, and 2006, are set forth below (dollar amounts in thousands):

Consolidated Statements of Operations (thousands of dollars, except per share data)

	Years Ended December 31
	2008				2007				2006
Automotive original equipment	$	8,764	81.5	%	$	11,595	83.9	%	$	9,488	80.3	%
Industrial and residential equipment and devices		1,635	15.2			1,865	13.5			1,992	16.9
Other		352	3.3			361	2.6			331	2.8
Total net sales	$	10,751	100.0	%	$	13,821	100.0	%	$	11,811	100.0	%

	Years Ended December 31
	2007			2006			2005
Net sales	$	88,408		$	87,901		$	96,842
Cost of sales		76,529			77,159			87,369
Gross profit		11,879			10,742			9,473
Selling and administrative expenses		7,204			6,658			6,747
Gain on the sale of assets held for sale		—			—			1,671
Income from operations		4,675			4,084			4,397
Other income (expense):
Interest expense		(11,339	)		(10,943	)		(9,200	)
Gain on repurchase of debt		—			—			77
Income (loss) from continuing operations before income taxes		(6,664	)		(6,859	)		(4,726	)
Income tax provision (benefit)		6			18			(299	)
Income (loss) from continuing operations		(6,670	)		(6,877	)		(4,427	)
Income (loss) from discontinued operations		(289	)		(472	)		644
Net income (loss)	$	(6,959	)	$	(7,349	)	$	(3,783	)
Basic and diluted income (loss) per share of common stock:
Continuing operations	$	(1.35	)	$	(1.39	)	$	(0.90	)
Discontinued operations		(0.06	)		(0.10	)		0.13
Net income (loss)	$	(1.41	)	$	(1.49	)	$	(0.77	)

During 2008, net sales of the Metals Group decreased by $3,070,000, or 22.2%, compared to 2007, primarily as a result of reduced net sales of components to automotive OEMs, which was primarily a result of production cutbacks by the automobile manufacturers and inventory reductions throughout the supply chain during 2008. The three largest customers of the Metals Group accounted for 48.3%, 55.2%, and 51.2% of the Metals Group’s net sales during 2008, 2007, and 2006, respectively.

~~See~~Cost ~~notes~~of sales as a percentage of net sales increased to ~~consolidated~~101.7% ~~financial~~of ~~statements~~ net sales during 2008 from 97.6% of net sales during 2007, primarily because of the underabsorption of fixed or partially fixed manufacturing overhead during a period of reduced sales volume.

~~-43-~~ Selling and administrative expenses of the Metals Group increased by $35,000, or 6.7%, from 2007 to 2008. Selling and administrative expenses expressed as a percentage of net sales increased to 5.2% of net sales during 2008, compared to 3.8% during 2007, primarily because of the underabsorption of fixed or partially fixed expenses during a period of reduced sales volume.

~~Table~~- of27 ~~Contents~~-

~~LEXINGTON~~For ~~PRECISION~~2008, ~~CORPORATION AND~~the ~~SUBSIDIARY~~ Metals Group’s loss from operations was $741,000, compared to a loss from operations of $192,000 for 2007. The Metals Group’s EBITDA for 2008 was negative $205,000, compared to positive $490,000 for 2007.

~~Consolidated~~During ~~Balance~~2007, ~~Sheets (thousands~~net sales of ~~dollars~~the Metals Group increased by $2,010,000, ~~except~~or ~~share~~17%, ~~data)~~ compared to 2006, primarily as a result of sales to new customers.

	December 31
	2007		2006
Assets:
Current assets:
Cash	$	212	$	35
Marketable securities		214		—
Accounts receivable, net of allowances of $476 and $412, respectively		10,981		9,852
Inventories, net of allowances of $612 and $417, respectively		9,330		8,787
Prepaid expenses and other current assets		1,032		1,073
Deferred income taxes		98		374
Current assets of discontinued operations		10		101
Total current assets		21,877		20,222
Plant and equipment:
Land		1,817		1,776
Buildings		13,370		13,368
Equipment		110,723		110,980
		125,910		126,124
Accumulated depreciation		105,056		101,898
Plant and equipment, net		20,854		24,226
Plant and equipment of discontinued operations, net		1,338		1,418
Goodwill, net		7,623		7,623
Other assets, net		675		951
	$	52,367	$	54,440

Cost of sales as a percentage of net sales decreased to 97.6% during 2007 from 104.9% during 2006, primarily because of (1) improved production efficiencies, (2) improved absorption of fixed or partially fixed manufacturing overhead during a period of increasing net sales, (3) lower depreciation expense, and (4) reduced material costs as a percentage of net sales.

~~See~~Selling ~~notes~~and administrative expenses of the Metals Group decreased from $669,000 during 2006 to ~~consolidated~~$523,000 ~~financial~~during ~~statements~~ 2007, primarily because of a reduction in headcount.

~~(continued~~During on2007, ~~next~~the ~~page)~~ loss from operations was $192,000, compared to a loss from operations of $1,245,000 during 2006. EBITDA for 2007 was positive $490,000, compared to negative $425,000 for 2006.

~~-44-~~ Corporate Office

~~Table~~Corporate Office expenses, which are not included in the operating results of ~~Contents~~the Rubber Group or the Metals Group, represent administrative expenses incurred primarily at our New York City and Cleveland offices. Corporate Office expenses are consolidated with the selling and administrative expenses of the Rubber Group and the Metals Group in our consolidated financial statements.

~~LEXINGTON~~The ~~PRECISION~~following ~~CORPORATION AND~~table ~~SUBSIDIARY~~sets forth the operating results of the Corporate Office for 2008, 2007, and 2006 and the reconciliation of the Corporate Office’s loss from operations to its EBITDA (dollar amounts in thousands):

Consolidated Balance Sheets (thousands of dollars, except share data)

	Years Ended December 31
	2008			2007			2006
Loss from operations	$	(2,718	)	$	(3,108	)	$	(2,313	)
Add back: depreciation and amortization (1)		51			28			20
EBITDA	$	(2,667	)	$	(3,080	)	$	(2,293	)

	December 31
	2007			2006
Liabilities and stockholders’ deficit:
Current liabilities:
Accounts payable	$	6,558		$	6,370
Accrued expenses, excluding interest expense		3,932			3,789
Accrued interest expense		7,954			2,130
Debt in default		68,345			68,967
Current portion of long-term debt		741			734
Current liabilities of discontinued operations		241			221
Total current liabilities		87,771			82,211
Long-term debt, excluding current portion		5			406
Deferred income taxes		98			374
Other long-term liabilities		434			440
Stockholders’ deficit:
Common stock, $0.25 par value, 10,000,000 shares authorized, 5,021,767 and 4,981,767 shares issued and outstanding at December 31, 2007 and 2006, respectively		1,238			1,235
Additional paid-in-capital		13,187			13,181
Accumulated deficit		(50,366	)		(43,407	)
Total stockholders’ deficit		(35,941	)		(28,991	)
	$	52,367		$	54,440

(1)

~~See~~Excludes ~~notes~~the toamortization and write-off of deferred financing expenses, which totaled $251,000, $1,249,000, and $3,078,000, in 2008, 2007, and 2006, respectively, and which is included in interest expense in the consolidated financial statements .

During 2008, Corporate Office expenses decreased to $2,718,000 from $3,108,000 during 2007. During 2008, prior to our filing of chapter 11 on April 1, 2008, and during 2007, Corporate Office expenses included $508,000 and $698,000, respectively, of expenses incurred in connection with our efforts to refinance, restructure, or repay our indebtedness. During the period from April 1, 2008, through December 31, 2008, we incurred $4,540,000 of net expenses in connection with our efforts to refinance, restructure, or repay our indebtedness, which, in accordance with SOP 90-~~45-~~ 7, were classified as reorganization items in our consolidated statements of operations. For more information on our efforts to refinance, restructure, or repay our indebtedness, please refer to the section titled “Liquidity and Filing of Chapter 11” in this Part II, Item 7.

~~Table~~- of28 ~~Contents~~-

~~LEXINGTON~~During ~~PRECISION~~2007, ~~CORPORATION AND~~Corporate ~~SUBSIDIARY~~ Office expenses increased by $795,000, compared to 2006, primarily because we incurred expenses of $698,000 in connection with our efforts to refinance, restructure, or repay our senior, secured debt and Senior Subordinated Notes as more fully discussed in the section titled “Liquidity and Filing of Chapter 11” in this Part II, Item 7. The balance of the increase in cost was primarily due to higher premiums for liability insurance.

~~Consolidated~~Interest ~~Statements of Stockholders’ Deficit (thousands of dollars)~~ Expense

			Additional					Total
	Common		Paid-in-		Accumulated			Stockholders’
	Stock		Capital		Deficit			Deficit
Balance at January 1, 2005	$	1,233	$	13,169	$	(32,277	)	$	(17,875	)
Net income		—		—		(3,783	)		(3,783	)
Vesting of restricted stock grants		—		—		2			2
Balance at December 31, 2005		1,233		13,169		(36,058	)		(21,656	)
Net loss		—		—		(7,349	)		(7,349	)
Vesting of restricted stock grants		2		12		—			14
Balance at December 31, 2006		1,235		13,181		(43,407	)		(28,991	)
Net loss		—		—		(6,959	)		(6,959	)
Vesting of restricted stock grants		3		6		—			9
Balance at December 31, 2007	$	1,238	$	13,187	$	(50,366	)	$	(35,941	)

A breakdown of interest expense for 2008, 2007, and 2006 is set forth below (dollar amounts in thousands):

See notes to consolidated financial statements

	Years Ended December 31
	2008		2007		2006
Interest expense at contractual interest rates:
Senior, secured loans	$	2,490	$	3,698	$	3,334
Debtor-in-possession loan		296		—		—
Senior Subordinated Notes		4,101		4,101		4,101
Junior Subordinated Note		45		45		45
All other		84		47		480
Subtotal		7,016		7,891		7,960
Interest expense resulting from incremental interest rates:
Senior, secured loans — default or forbearance premium		172		698		62
Senior Subordinated Notes — forbearance premium		411		1,279		—
Senior Subordinated Notes — interest on missed interest payments		1,044		390		21
Subtotal		1,627		2,367		83
Financing costs and fees		251		1,249		3,078
Total interest expense		8,894		11,507		11,121
Less: Interest expense allocated to discontinued operations		168		168		178
Interest expense related to continuing operations	$	8,726	$	11,339	$	10,943

~~-46-~~ The average amount of debt outstanding during 2008, 2007, and 2006, including past due interest payments on which we are accruing interest, was $81,395,000, $77,195,000, and $70,585,000, respectively. In 2008, 2007, and 2006, cash interest payments were $3,175,000, $4,431,000, and $6,749,000, respectively. For more information about the status of our senior, secured debt and our Senior Subordinated Notes, please refer to the discussion under the section titled “Liquidity and Filing of Chapter 11” in this Part II, Item 7.

~~Table~~On April 2 and 17, 2008, and on March 3, 2009, the Bankruptcy Court entered orders authorizing certain arrangements pursuant to which we are permitted to utilize the collections on our accounts receivable in the operation of ~~Contents~~our business. Under those arrangements, the interest rates on our senior, secured debt were reduced from the default rates to the contractual rates, and we agreed to continue to pay the scheduled monthly principal payments on the secured term loans. We continue to accrue interest on our unsecured prepetition debt at the applicable contractual rates because we believe that the company is solvent and our unsecured debt, including accrued interest thereon, will be paid in full. For more

~~LEXINGTON~~- ~~PRECISION~~29 ~~CORPORATION AND SUBSIDIARY~~ -

~~Consolidated~~information ~~Statements~~about the status of ~~Cash~~our ~~Flows (thousands~~debt, please refer to the section titled “Liquidity and Filing of ~~dollars)~~ Chapter 11” in this Part II, Item 7.

	Years Ended December 31
	2007			2006			2005
Operating activities:
Net loss	$	(6,959	)	$	(7,349	)	$	(3,783	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities of continuing operations:
Net loss (income) from discontinued operations		289			472			(644	)
Depreciation		6,036			6,919			8,012
Amortization included in cost of sales		401			376			362
Amortization and write-off of deferred financing expenses included in interest expense		1,249			3,078			1,315
Gain on repurchase of debt		—			—			(77	)
Gain on sale of assets held for sale		—			—			(1,671	)
Changes in operating assets and liabilities that provided (used) cash:
Accounts receivable, net		(1,256	)		2,849			2,621
Inventories, net		(543	)		(1,003	)		1,007
Prepaid expenses and other assets		108			(457	)		1,151
Accounts payable		188			(2,683	)		(700	)
Accrued expenses, excluding interest expense		143			(912	)		(138	)
Accrued interest expense		5,824			1,281			(126	)
Other long term liabilities		(2	)		12			(31	)
Other		(42	)		(27	)		(156	)
Net cash provided by continuing operations		5,436			2,556			7,142
Net cash provided (used) by discontinued operations		(158	)		(514	)		1,023
Net cash provided by operating activities		5,278			2,042			8,165
Investing activities:
Purchases of plant and equipment		(2,636	)		(2,504	)		(3,330	)
Proceeds from sales of assets and assets held for sale		118			—			4,518
Expenditures for tooling owned by customers		(197	)		(174	)		(544	)
Other		(26	)		50			39
Net cash provided (used) by continuing operations		(2,741	)		(2,628	)		683
Net cash provided (used) by discontinued operations		(27	)		(13	)		2,360
Net cash provided (used) by investing activities		(2,768	)		(2,641	)		3,043
Financing activities:
Net increase (decrease) in borrowings under revolving lines of credit		2,263			(3,585	)		(2,555	)
Proceeds from issuance of debt		—			28,500			1,500
Repayment of debt		(3,310	)		(22,527	)		(9,705	)
Payment of financing expenses		(1,286	)		(1,767	)		(452	)
Net cash provided (used) by financing activities		(2,333	)		621			(11,212	)
Net increase (decrease) in cash		177			22			(4	)
Cash at beginning of year		35			13			17
Cash at end of year	$	212		$	35		$	13

Reorganization Items

~~See~~SOP ~~notes~~90-7 torequires that revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of a business must be reported separately as reorganization items in the statements of operations. Reorganization items reflected in our consolidated financial statements for the period from April 1, 2008, through December 31, 2008, are set forth below (dollar amounts in thousands):

-47-

Professional fees and expenses incurred directly by us	$	2,239
Professional fees and expenses incurred by creditors		2,072
Other costs		346
Interest income		(117	)
Reorganization items, net	$	4,540

~~Table~~Income ofTax ~~Contents~~Provision

~~NOTES~~The TOincome ~~CONSOLIDATED~~tax ~~FINANCIAL~~provisions ~~STATEMENTS~~ recorded in 2008, 2007, and 2006, consisted of estimated state income taxes. For additional information concerning income taxes and related matters, see Note 9, “Income Taxes,” in the notes to our consolidated financial statements in Part II, Item 8.

~~Note~~Discontinued ~~1 — Summary of Significant Accounting Policies~~ Operation

The results of operations, assets, liabilities, and cash flows of the Company ’s former diecasting business have been classified as discontinued operations in the consolidated financial statements. Interest expense allocated to discontinued operations totaled $168,000, $168,000, and $178,000, for 2008, 2007, and 2006, respectively. During 2007 and 2006, we increased our provision for environmental remediation at the manufacturing facility formerly housing the diecasting business by $87,000 and $255,000, respectively. In March 2007, the State of New York Department of Environmental Conservation informed us that it intended to commence the process to classify it as a Class 4 Site under the State of New York Environmental Conservation Law, which would mean that the site was properly closed and only required continued monitoring.

~~Lexington~~Liquidity ~~Precision Corporation~~ and ~~its~~Capital wholly-owned subsidiary, Lexington Rubber Group, Inc. (collectively, the “Company”), have two operating segments, the Rubber Group and the Metals Group. The Rubber Group is engaged in the manufacture of connector seals used in automotive wiring systems, insulators used in both original equipment and aftermarket ignition-wire sets, and molded rubber components used in a variety of medical devices. The Metals Group is engaged in the manufacture of machined metal components from aluminum, brass, steel, and stainless steel bars, forgings, and cold-headed blanks for sale to automotive and industrial customers. Resources

~~Principles~~Operating ~~of Consolidation~~ Activities

~~The~~During ~~consolidated~~2008, ~~financial~~operating ~~statements~~activities ~~include~~of ~~the~~our continuing operations provided net cash of $4,120,000. Net accounts receivable decreased by $4,187,000, or 38.1%, during 2008, primarily because (1) our net product sales during November and December of ~~Lexington~~2008 ~~Precision~~were ~~Corporation~~ less than our net product sales during November and ~~Lexington~~December ~~Rubber~~2007, ~~Group~~(2) the amount of outstanding billings for sales of tools and automation equipment decreased by $307,000, ~~Inc~~or 44.6%, and ~~All~~(3) ~~significant~~our ~~intercompany~~reserve ~~accounts~~for ~~and~~bad ~~transactions~~debts ~~have~~increased ~~been eliminated~~by $259,000, or 54.4%, ~~Unless~~during ~~otherwise~~2008. Inventories ~~indicated~~increased ~~all~~by ~~disclosures~~$1,267,000, ~~and~~or ~~amounts~~13.6%, ~~relate~~primarily ~~solely~~because of (a) higher metals prices, (b) increased raw material inventory due to an abnormally low level of raw materials at December 31, 2007, (c) a change in the ~~continuing operations~~terms of sale to a large customer, which resulted in increased on-hand finished goods inventory (d) the ~~Company.~~building of components to satisfy the safety stock requirements of certain of our customers as a result of our chapter 11 filing, and (e) an unanticipated sharp decline in net sales during the third and fourth quarters of 2008 that did not allow sufficient time for us to adjust our

~~Basis~~- of30 ~~Presentation~~ -

Onfinished ~~April 1,~~goods ~~2008,~~inventory ~~the~~levels ~~Company~~to ~~filed~~the alevels ~~voluntary~~required ~~petition~~to ~~for~~support ~~relief~~reduced ~~under~~net ~~chapter~~sales 11levels. Prepaid ofexpenses ~~the Bankruptcy~~and ~~Code~~other incurrent ~~the~~assets ~~United~~increased ~~States~~by ~~Bankruptcy~~$1,403,000, ~~Court~~or ~~for~~135.9%, during the ~~Southern~~year, ~~District~~because of(i) ~~New~~we ~~York.~~had ~~In connection~~a ~~with~~receivable ~~this~~from ~~petition,~~our ~~the~~property ~~Company~~insurance ~~obtained~~carrier ain ~~financing~~the ~~package~~amount ~~that consists~~ of ~~(1) an arrangement~~$634,000 ~~with~~at ~~the~~December ~~Company’s~~31, ~~senior~~2008, ~~secured~~for ~~lenders~~expenditures tothat ~~freeze~~we ~~the~~incurred ~~loans~~as ~~under~~a ~~their~~result ~~revolving line~~ of ~~credit~~a fire that took place at ~~the~~our ~~amount~~facility ~~outstanding~~in onRock ~~April 1~~Hill, South Carolina, in November 2008, and to(ii) ~~permit~~we ~~the~~had ~~Company~~deposits tototaling ~~use~~$464,000 ~~the collections~~with onutilities ~~its~~and ~~accounts~~trade ~~receivable~~creditors insecuring delivery of certain services and products. As of the ~~operation~~date of ~~its~~filing ~~business~~this ~~through~~Form ~~February 25~~10-K, ~~2009, and~~we ~~(2) a~~have received $4500,000~~,000~~ ~~debtor-in-possession~~from ~~(“DIP”)~~our ~~loan~~property ~~that~~insurance ~~matures~~carrier onand ~~April 1,~~we ~~2009.~~do ~~The arrangement~~not ~~with~~anticipate ~~the~~any ~~senior,~~problems ~~secured~~in ~~lenders~~recovering ~~provides~~the ~~for~~balance aof ~~continuation~~our ofexpenditures ~~the~~in ~~Company’s~~accordance ~~monthly, term~~with ~~loan~~the ~~principal~~terms ~~payments,~~of ~~which~~the ~~aggregate~~property ~~$269,000~~insurance ~~per~~policy. ~~month,~~Accounts ~~and~~payable ~~the~~at ~~elimination~~December of31, ~~the default~~2008, ~~interest~~included ~~premium~~$1,168,000 soof ~~that~~unpaid ~~the~~billings ~~Company’s~~from ~~interest~~attorneys, ~~rates~~investment ~~returned~~advisors, toand ~~the~~other ~~original~~fees ~~contractual~~and ~~rates.~~expenses ~~The~~incurred ~~DIP~~in ~~loan~~connection iswith ~~unsecured,~~our ~~subordinated~~chapter to11 ~~the~~filing. ~~senior,~~Accrued ~~secured~~expenses ~~loans~~decreased ~~and~~by ~~bears~~$550,000 ~~interest~~ at ~~LIBOR~~ ~~plus~~December 31, 7%2008, ~~subject~~primarily tobecause of a ~~minimum~~reduction ~~interest~~in ~~rate~~accruals offor ~~10%~~employee benefits. Accrued Atinterest ~~April 30~~expense, ~~2008,~~including ~~the~~accrued ~~DIP~~interest ~~loan~~expense ~~had~~classified ~~been fully~~as ~~funded~~a ~~and~~liability ~~the~~subject ~~Company~~to ~~had~~compromise, ~~approximately~~increased by $85,~~000~~468,000, or 68.7%, primarily because of ~~cash~~additional accruals of interest on ~~hand~~our subordinated debt.

~~The~~Net ~~Company~~cash ~~does~~used ~~not~~by ~~believe~~operating ~~that~~activities ~~it will need to utilize the provisions~~ of ~~the~~our ~~Bankruptcy Code~~discontinued to effect any significant operational restructuring or to eliminate or renegotiate any unprofitable executory contracts that are material to its business. The Company has experienced no disruptions in its operations tototaled ~~date and~~$38, ~~based upon discussions with a significant number of major suppliers and customers, the Company does not expect any such disruption during the term of the chapter 11 proceedings~~000.

~~Although~~Investing there can be no assurance that the Company will be successful, its intent in filing for chapter 11 protection is to use the powers afforded it under the Bankruptcy Code to effect a financial restructuring that results in a significant reduction in its total indebtedness on a basis that is fair and equitable to all of its creditors and stockholders. The Company intends to file a plan of reorganization with the Bankruptcy Court no later that June 30, 2008, and hopes to confirm that plan by September 30, 2008. The Company expects that its plan of reorganization will result in a significant reduction in its Activities

~~-48-~~ During 2008, investing activities of our continuing operations used net cash of $2,847,000. Capital expenditures attributable to the Rubber Group, the Metals Group, and the Corporate Office totaled $2,343,000, $333,000, and $19,000, respectively, primarily for manufacturing equipment, tooling for our automotive aftermarket business, tooling for certain OEM automotive components, and improvements to 20 acres of commercial land in Ellijay, Georgia. Capital expenditures for the Rubber Group, the Metals Group, and the Corporate Office are currently projected to total $2,086,000, $523,000, and $8,000, respectively, for 2009. At December 31, 2008, we had approximately $81,000 of unrecorded commitments outstanding to purchase equipment.

~~Table~~Financing ~~of Contents~~Activities

~~NOTES~~During TO2008, ~~CONSOLIDATED~~our ~~FINANCIAL~~financing ~~STATEMENTS~~ activities provided net cash of $4,093,000. In 2008, we received $4,000,000 of cash from the issuance of the debtor-in-possession note and we increased borrowings under our revolving line of credit by $3,587,000. We made principal payments on our term loans totaling $3,280,000.

~~aggregate~~Liquidity ~~indebtedness~~and byFiling ~~means~~ of aChapter ~~conversion of a significant portion of its subordinated debt to equity. We also intend to retain all of our operations, including the medical business.~~ 11

~~See~~We ~~also~~have ~~Note~~not made the scheduled interest payments due on our Senior Subordinated Notes since November 1, 2006. From May 25, 2007, through January 24, 2008, we operated under a forbearance agreement with six hedge funds that hold $25,428,000 aggregate principal amount, or 74.4%, ~~“Debt~~of the Senior Subordinated Notes outstanding.” While the forbearance agreement was in effect, we were not required to make interest payments on the Senior Subordinated Notes, and the forbearing noteholders could not take any action to collect any past due interest payments. An additional $7,772,000 aggregate principal amount, or 22.7%, of the Senior Subordinated Notes outstanding is held by certain of our affiliates and members of their families. The interest rate on the Senior Subordinated Notes was increased from 12% to 16% for the period from March 9, 2007, through March 31, 2008. At December 31, 2008, accrued interest on our Senior Subordinated Notes totaled $13,055,000.

The ~~Company’s~~failure ~~consolidated~~to ~~financial~~make ~~statements~~the ~~have~~scheduled ~~been~~interest ~~presented~~payments on ~~a “going concern basis,” as such term is used in U.S. generally accepted accounting principles. A going concern basis contemplates~~ the ~~realization~~Senior ofSubordinated ~~assets~~Notes ~~and~~caused ~~the~~a ~~satisfaction~~cross-default ofunder ~~liabilities in~~ the ~~normal course~~agreements ofgoverning ~~business.~~our ~~The Company’s ability to restructure, refinance, or repay its~~ senior, secured ~~debt~~ ~~and Senior Subordinated Notes is subject to risks and uncertainties~~debt. ~~As a result~~Additionally, ~~there~~we ~~is substantial~~were ~~doubt~~not ~~about~~in ~~the~~compliance ~~Company’s~~with ~~ability~~certain tofinancial ~~continue to report on a going concern basis~~covenants. ~~The consolidated~~From ~~financial~~May ~~statements~~25, do2007, ~~not~~through ~~include~~January 24, ~~any~~2008, ~~adjustments~~we tooperated ~~the amounts or classification of assets or liabilities to reflect these risks and uncertainties.~~

~~Use~~- of31 ~~Estimates~~ -

~~The~~under ~~preparation~~a offorbearance ~~the~~arrangement ~~consolidated~~with ~~financial~~the ~~statements~~senior, insecured ~~conformity with U~~lenders.S. ~~generally accepted~~The ~~accounting~~forbearance ~~principles~~agreement ~~requires~~(1) ~~management~~provided tothat ~~make~~the ~~estimates~~senior, ~~and~~secured ~~assumptions~~lenders ~~that~~would ~~affect the~~take ~~reported~~no ~~amounts~~action ofto ~~assets~~accelerate ~~and~~or ~~liabilities~~collect ~~and~~their ~~the~~loans ~~reported~~as ~~amounts~~a result of ~~revenue~~any ~~and~~existing ~~expenses during~~default ~~each~~or ~~reporting~~cross-default ~~period.~~and ~~Future~~(2) ~~events~~modified ~~and~~certain ~~their~~of ~~impact~~the onfinancial ~~the~~covenants ~~Company’s~~effective ~~results~~March 31, of2007. ~~operations or~~During ~~financial~~the ~~position~~forbearance ~~cannot~~period, bewe ~~determined~~remained ~~with~~in ~~any~~compliance ~~certainty.~~with ~~Although~~all ~~the~~financial ~~Company~~covenants, ~~strives~~as tomodified, ~~use its~~and ~~best~~we ~~judgment~~remained incurrent ~~making~~on ~~estimates~~all principal and ~~assumptions,~~interest ~~actual~~payments ~~results~~owed ~~could~~to ~~vary~~the ~~materially~~secured ~~from anticipated results~~lenders.

~~Marketable~~Upon ~~Securities~~ the commencement of the forbearance period, we engaged the investment banking firm of W.Y. Campbell & Company to assist in a review of the various strategic alternatives available to us to satisfy our outstanding indebtedness. As a consequence of this review, we determined to pursue a sale of the assets and business of the Rubber Group and, with the assistance of W.Y. Campbell, prepared an offering memorandum with respect to the proposed sale. During the summer and fall of 2007, we distributed the offering memorandum to a number of interested parties, including both financial and strategic purchasers.

~~The~~During ~~Company had marketable securities in~~ the ~~amount~~fourth quarter of ~~$214,000 at December 31,~~ 2007, ~~classified~~ aswe ~~available-for-sale.~~received ~~Unrealized~~several ~~holding~~offers ~~gains~~to ~~and~~purchase ~~losses~~all onor ~~available-for-sale securities~~portions ~~are~~of ~~reported~~the inassets ~~accumulated~~of ~~other~~the ~~comprehensive~~Rubber ~~income~~Group. toBased ~~the~~upon ~~extent~~these ~~such~~offers ~~gains~~ and ~~losses~~ ~~are deemed material. Declines in~~ the ~~fair~~advice ~~value~~ of ~~available-for-sale~~W.Y. ~~securities~~Campbell, ~~below~~we ~~their cost~~concluded that ~~are~~(1) ~~deemed~~the tovalue beof ~~other~~the ~~than~~Rubber ~~temporary~~Group ~~are~~alone ~~reflected~~was significantly in ~~earnings~~excess asof ~~realized~~our ~~losses.~~total ~~In estimating~~indebtedness ~~other-than-temporary~~and ~~impairment losses, management considers~~ (12) the ~~length~~proposal ofthat ~~time~~would ~~and the~~provide ~~extent to which~~ the ~~fair~~maximum value ~~has~~for ~~been~~all ~~less~~of ~~than~~our ~~cost,~~constituencies ~~(2) the~~was ~~financial~~an ~~condition~~offer ~~and near-term~~from ~~prospects~~a ofmajor, ~~the issuer~~multi-national, ~~and~~industrial ~~(3) the~~company ~~intent and ability of the Company~~ to ~~retain~~purchase ~~its investment~~our facility in ~~the~~Rock ~~issuer~~Hill, ~~for~~South aCarolina, ~~period~~which ofspecializes ~~time~~in ~~sufficient~~manufacturing tomolded ~~allow~~rubber components for ~~any~~use ~~anticipated recovery~~ in ~~fair~~ ~~value~~medical devices. ~~For~~The ~~the~~proposed ~~year~~purchase ~~ended~~price ~~December 31,~~of ~~2007~~$32,000,000 ~~there~~would ~~were~~have noresulted ~~write~~in ~~downs~~an toafter-tax ~~realizable~~gain ~~value considered~~of ~~necessary~~approximately $26,000,000.

~~Valuation~~During January 2008, we approached the six hedge funds that own a majority of ~~Accounts~~our ~~Receivable~~Senior ~~and~~Subordinated ~~Provision~~Notes ~~for~~to ~~Credit~~advise ~~Losses~~ them of the following:

~~The Company records accounts receivable due from its customers at the time a sale is recorded in accordance with its revenue recognition policy~~1. The Company operates primarily in the domestic automotive market, which has been characterized by price competition, increasing requirements for quality and service, and reduced volume because of slowing sales of automobiles. These factors, among others, may have an adverse effect on the operating results and financial condition of specific customers and, in turn, on the collectibility of the Company’s accounts receivable from those customers. The Company attempts to mitigate this risk of loss through ongoing evaluations of automotive market conditions, examination of financial statements of its customers, and discussions with management of its customers. Provisions for credit losses are based upon historical experience and such ongoing evaluations.

~~-49-~~ We had decided to pursue the proposal to purchase the Rock Hill facility;

~~Table of Contents~~2.

~~NOTES~~We TOhad ~~CONSOLIDATED~~received ~~FINANCIAL~~a ~~STATEMENTS~~ proposal from a new senior, secured lender to provide us with a $36,700,000 senior, secured credit facility upon completion of the sale of the Rock Hill facility;

~~The Company generally does not require collateral from its customers to support the extension of trade credit~~3.

~~Valuation~~We believed that the proceeds of ~~Inventory~~ the sale and the new credit facility would permit us to pay all accrued interest on the Senior Subordinated Notes plus 50% of the principal amount of the Senior Subordinated Notes held by non-affiliates;

~~Inventory is valued at the lower of cost (first-in, first-out method) or market~~4. The Company evaluates its inventory on a quarterly basis to ensure that it is properly valued. The Company records allowances against inventory to provide for losses due to obsolescence, lower of cost or market valuations, excess quantities on hand, and certain other factors. In doing so, the Company applies consistent practices that include the identification of potentially unmarketable inventory based on assumptions about future demand and historical usage rates, specific identification of components that are being replaced with a new generation of components, and actual margins generated from the sales of its components.

~~Inventory~~In ~~levels~~order to facilitate the refinancing, the balance of the Senior Subordinated Notes held by ~~principal~~non-affiliates ~~classification~~would ~~are~~have ~~set~~to ~~forth~~be ~~below~~extended ~~(dollar~~to ~~amounts~~mature ~~in thousands):~~ on August 31, 2013, and would receive cash interest at 12% per annum; and

	December 31
	2007		2006
Finished goods	$	5,201	$	4,595
Work in process		2,185		2,279
Raw materials		1,944		1,913
	$	9,330	$	8,787

~~Plant~~We ~~and~~had ~~Equipment~~ agreed that the 22.7% of the Senior Subordinated Notes held by affiliates would be converted into shares of our common stock concurrently with the completion of the refinancing transactions described above.

~~Plant~~At ~~and equipment are carried at cost less accumulated depreciation. Depreciation is calculated principally on~~ the ~~straight-line~~same ~~method~~time, ~~over~~we ~~the~~requested ~~estimated~~an ~~useful~~extension ~~lives~~ of the ~~various assets~~forbearance (3agreement to ~~8 years~~May ~~for~~31, ~~equipment~~2008, ~~and~~in 15order to ~~31 years~~provide ~~for buildings). When an asset is retired or otherwise disposed of,~~ the ~~related~~prospective ~~cost~~purchaser and ~~accumulated depreciation are removed from~~ the ~~Company’s records.~~new ~~Maintenance and repair expenses are expensed as incurred~~senior, ~~while~~secured ~~major~~lender ~~improvements that increase~~ the ~~useful~~time ~~life~~they ofrequired ~~plant~~to ~~and~~complete ~~equipment~~their ~~are~~due ~~capitalized.~~diligence ~~Maintenance~~ and ~~repair expenses were $4,067,000, $4,265,000, and $4,483,000 for 2007, 2006, and 2005, respectively~~documentation.

~~Valuation~~In late January 2008, the six hedge funds responded with an alternative proposal for an extension of ~~Long-Lived~~the ~~Assets~~forbearance ~~other~~arrangement. ~~than~~After ~~Goodwill~~ reviewing this proposal with our counsel and W.Y. Campbell, we concluded that it would not be in the best interests of all of our creditors and equity holders to proceed with an extension on the terms proposed. Further discussions were unproductive and, as a result, the

~~The Company evaluates the value of its plant and equipment and other long~~-~~term~~ ~~assets~~32 other than goodwill when events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable. Changes in technology or in the Company’s use of these assets may cause the estimated useful lives of these assets to change and result in the impairment of these assets. -

~~When~~forbearance ~~performing~~agreement ~~this~~expired ~~evaluation,~~on ~~the~~January ~~Company~~25, ~~prepares a projection of the future cash flow it will derive from an asset or group of assets~~2008. IfBecause the ~~projected~~forbearance ~~cash~~agreement ~~flow~~with ~~is less than~~ the ~~carrying value~~hedge offunds ~~the~~was ~~asset~~not ~~or asset group~~extended, the ~~Company~~forbearance ~~recognizes~~agreement anwith ~~impairment loss equal to~~ the ~~excess~~senior, if ~~any,~~secured oflenders ~~the~~also ~~carrying~~expired ~~value~~on ofJanuary 25, ~~the asset or asset group over its appraised fair value~~2008, ~~net~~and ~~of estimated~~we ~~disposal~~were ~~costs.~~in ~~Although~~default ~~the Company believes that its projections~~ of ~~future~~our ~~cash flows are reasonable~~senior, ~~changes~~secured infinancing ~~unit~~ agreements.

~~-50-~~ Subsequent to the expiration of the forbearance agreements, we continued our discussions with the six hedge funds and proposed a number of transactions for the restructuring of our debt, but each of these proposals was rejected. Ultimately, we determined that the best available method to effect a restructuring of our debt on terms that would be fair to all of our creditors and stockholders was to utilize the provisions of chapter 11 of the Bankruptcy Code.

~~Table~~On April 1, 2008, we filed a voluntary petition for relief under chapter 11 of ~~Contents~~title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (Case No. 08-11153). In connection with this petition, we obtained a financing package that we believed provided us more than adequate liquidity to operate our business without interruption throughout the term of the chapter 11 proceedings. This financing package consisted of (1) an arrangement with our senior, secured lenders to freeze the loan under our revolving line of credit at the amount outstanding on April 1, 2008, and to permit us to utilize the collections on our accounts receivable in the operation of our business through February 25, 2009, which was subsequently extended to May 22, 2009, and (2) an unsecured, super-priority debtor-in-possession loan in the amount of $4,000,000, which matures on December 31, 2009. The arrangement with the senior, secured lenders provided for a continuation of the scheduled monthly, term loan principal payments, which aggregate $269,000 per month, and the elimination of the default interest premium, so that our interest rates returned to the original contractual rates. The debtor-in-possession loan is subordinated to the senior, secured loans, and bears interest at LIBOR plus 7%, subject to a minimum interest rate of 10%.

~~NOTES~~At TOMarch ~~CONSOLIDATED~~31, ~~FINANCIAL~~2008, ~~STATEMENTS~~ prior to our chapter 11 filing, our senior, secured credit facility included a $17,500,000 revolving line of credit, with $12,875,000 of loans and $907,000 of letters of credit outstanding. At April 1, 2008, there were $14,219,000 of loans and $907,000 of letters of credit outstanding under the revolving line of credit. The contractual interest rate on loans under the revolving credit is LIBOR plus 2.75% (3.19% at December 31, 2008).

~~sales~~Our equipment term loan had an outstanding principal balance of $8,542,000 ~~pricing~~at March 31, ~~cost~~2008, of$8,333,000 ~~goods~~at ~~sold~~April 1, 2008, and ~~other~~$6,667,000 ~~factors~~at ~~could significantly~~December ~~affect~~31, ~~the~~2008. ~~accuracy~~The ofcontractual interest rate on the ~~Company’s~~equipment ~~cash~~term ~~flow~~loan ~~projections~~is LIBOR plus 4. 5% (4.94% at December 31, 2008).

~~Valuation~~Our real estate term loan had an outstanding principal balance of ~~Goodwill~~ $13,839,000 at March 31, 2008, $13,778,000 at April 1, 2008, and $13,289,000 at December 31, 2008. The contractual interest rate on the real estate term loan is the prime rate plus 6% on $4,000,000 principal amount and LIBOR plus 4.5% on the balance (weighted average of 6.24% at December 31, 2008).

AtOn ~~December 31,~~April ~~2007 and 2006~~1, ~~the Company’s unamortized goodwill totaled $7~~2008,~~623,000,~~ ~~which related entirely to~~ the ~~Rubber~~financial ~~Group.~~covenants Atunder ~~December 31, 2007,~~ the ~~assets of the Rubber Group~~senior, ~~exclusive~~ ofsecured ~~goodwill,~~financing ~~totaled~~agreements ~~$34,613,000.~~were Inmodified ~~2007,~~as the Rubber Group’s income from operations totaled $7,975,000 and its depreciation and amortization totaled $5,727,000. Tests for impairment of goodwill are performed using a fair value approach during the fourth quarter of each year and at other times when events or changes in circumstances indicate possible impairment. follows:

In connection with the Company’s efforts to refinance or restructure its indebtedness during 2007, the Company pursued a possible sale of the assets and business of the Rubber Group and, with the assistance of W1.Y. Campbell & Company, prepared an offering memorandum. During the summer and fall of 2007, the Company distributed the offering memorandum to a number of interested parties, including both financial and strategic purchasers, and, during the fourth quarter of 2007, the Company received several offers to purchase all or portions of the assets of the Rubber Group. As a result, during 2007, the Company tested its goodwill for impairment by comparing the values implied by the various offers for all or portions of the Rubber Group’s business. Based on the Company’s analysis, it determined that the fair value of the Rubber Group’s assets exceeded the carrying value of those assets by an amount substantially in excess of the goodwill, and, consequently, the goodwill related to the Rubber Group was not deemed to be impaired.

~~Deferred~~Minimum ~~Financing~~Cash. ~~Expenses~~ Our aggregate cash was required to be greater than $1,000,000 on May 2, 2008, and $500,000 on May 30, 2008, and was required to be greater than $500,000 on the last day of each four-week period following May 30.

~~Deferred financing expenses are typically amortized on a straight-line basis until the date that the debt is due and payable either because of a stated maturity date or because of an event of default~~2. During the fourth quarter of 2006, the Company wrote off $1,829,000 of the unamortized deferred financing costs related to its Senior Subordinated Notes and its senior, secured debt, which was reclassified as debt in default in the Company’s consolidated balance sheet at December 31, 2006.

~~Research~~Maximum Expenditures. Our cumulative expenditures were required to be less than 110% of cumulative budgeted expenditures for the period from April 2, 2008, through April 18, 2008, and ~~Development~~was ~~Expenses~~ required to be less than 110% of cumulative budgeted expenditures on the last day of each two-week period following April 18.

~~Research~~- ~~and~~33 ~~development expenses are expensed as incurred. These expenses totaled $915,000, $1,093,000, and $931,000 in 2007, 2006, and 2005, respectively.~~ -

~~-51-~~ 3.

~~Table~~Minimum Net Sales. Our cumulative net sales were required to be greater than 90% of ~~Contents~~cumulative budgeted net sales from April 2, 2008, through May 2, 2008, and was required to be greater than 90% of cumulative budgeted net sales on the last day of each four-week period after May 2.

~~NOTES~~During TOthe ~~CONSOLIDATED~~second ~~FINANCIAL~~half ~~STATEMENTS~~of 2008, we experienced a dramatic downturn in automotive original equipment volume, which resulted in operating losses at our connector-seal facility located in Vienna, Ohio. Because of these losses and because we do not believe that it will be possible to return this facility to an adequate level of profitability in the foreseeable future, during the first quarter of 2009, we decided to close this facility and move the production to our other rubber molding facilities. We believe that the effectuation of this plan will significantly enhance our ability to obtain the financing we need to exit chapter 11. In order to allow us sufficient time in which to complete the operational restructuring of our connector-seal business, including the closing of the Vienna facility and the relocation of the connector-seal business to our other rubber molding facilities, on January 13, 2009, we filed a motion requesting that the Bankruptcy Court extend the time during which we have the exclusive right to file a plan of reorganization and our right to use cash collateral. Subsequent to a hearing held on our motion on February 23 and 24, 2009, the Bankruptcy Court extended our exclusive right to file a plan of reorganization until April 30, 2009, extended our exclusive right to solicit acceptances of such plan until June 1, 2009, and extended our right to use cash collateral to May 22, 2009. In addition, by mutual agreement, the maturity date of the debtor-in-possession loan was extended from April 1, 2009, to December 31, 2009. For more information on the restructuring of our connector-seal business, please refer to the discussion of the Rubber Group in the section titled “Results of Operations — Comparison of 2008, 2007, and 2006” in this Part II, Item 7.

~~Interest~~(THIS ~~Expense~~ SPACE INTENTIONALLY LEFT BLANK)

A- ~~breakdown~~34 ~~of interest expense for 2007, 2006, and 2005 is set forth below (dollar amounts in thousands):~~ -

	Years Ended December 31
	2007		2006		2005
Contractual interest rates:
Senior, secured loans	$	3,698	$	3,334	$	2,903
Senior Subordinated Notes		4,101		4,101		4,101
All other		92		525		1,143
Subtotal		7,891		7,960		8,147
Incremental interest rates:
Senior, secured loans — default or forbearance premium		698		62		—
Senior Subordinated Notes — forbearance premium		1,279		—		—
Senior Subordinated Notes — interest on missed interest payments		390		21		—
Subtotal		2,367		83		—
Costs and fees, including amortization and write-off of deferred financing costs		1,249		3,078		1,315
Total interest expense		11,507		11,121		9,462
Less: Interest expense allocated to discontinued operations		168		178		262
Interest expense related to continuing operations	$	11,339	$	10,943	$	9,200

By order of the Bankruptcy Court on March 4, 2009, our ability to use cash collateral was extended to May 22, 2009, and the financial covenants under the senior, secured financing agreements were further modified, effective February 27, 2009, as follows:

~~Net Income or Loss per Common Share~~ 1.

~~Basic~~Minimum ~~net income or loss per common share is computed using the weighted-average number of common shares outstanding~~Cash. ~~Diluted~~Our ~~net~~aggregate ~~income~~cash was or ~~loss per share~~ is ~~calculated~~required ~~after giving effect~~ to ~~all~~be ~~potential~~not ~~common~~less ~~shares~~than ~~that~~the ~~were~~following ~~dilutive,~~amounts ~~using~~on the ~~treasury~~specified ~~stock~~measurement ~~method.~~dates: ~~Potentially dilutive common shares consist of convertible preferred stock, unvested restricted stock, and warrants to purchase common stock. See also Note 9, “Net Income or Loss per Common Share.”~~

Revenue Recognition

February 27, 2009							$2,958,000
March 6, 2009							$2,402,000
March 13, 2009							$1,946,000
March 20, 2009							$1,867,000
March 27, 2009							$1,622,000
April 3, 2009							$1,499,000
April 10, 2009							$1,638,000
April 17, 2009							$1,307,000
April 24, 2009							$1,384,000
May 1, 2009							$1,222,000
May 8, 2009							$1,415,000
May 15, 2009							$1,334,000
May 22, 2009							$1,396,000

~~All~~On ofApril ~~the~~17, ~~Company’s~~2009, ~~revenues result from~~ the ~~sale~~latest ofmeasurement ~~rubber~~date ~~and~~prior ~~metal~~to ~~components and mixed rubber compounds. The Company recognizes revenue from~~ the ~~sale~~issuance of ~~these~~this items when title and risk of loss pass to its customers according to shipping schedules and terms of sale mutually agreed to by the Company and its customers. Shipping and handling costs are typically paid by the customer. If paid by the Companyreport, ~~shipping~~our ~~and~~aggregate ~~handling~~cash ~~costs~~was ~~are included in cost of sales~~$3,117,000. Accruals for sales returns and certain other sales allowances are recorded at the time of shipment based primarily on historical experience. These accruals may be adjusted subsequent to the date of shipment as new information becomes available.

~~-52-~~ 2.

~~Table~~ Maximum Expenditures. Our cumulative expenditures were required to be less than 110% of ~~Contents~~cumulative budgeted expenditures for the period from February 27, 2009, through March 13, 2009, and are required to be less than 110% of cumulative budgeted expenditures on the last day of each two-week period following March 13, 2009. At April 17, 2009, the latest measurement date prior to the issuance of this report, our cumulative expenditures were $5,439,000 less than 110% of cumulative budgeted expenditures.

~~NOTES~~3. ~~TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Recently~~Minimum ~~Issued~~Net ~~Accounting~~Sales. ~~Standards~~ Our cumulative net sales are required to be greater than 85% of cumulative budgeted net sales from April 2, 2008, through the end of every four-week period thereafter. At April 3, 2009, the latest measurement date prior to the issuance of this report, cumulative net sales exceeded 85% of cumulative budgeted net sales by $791,000.

~~Listed below are recently issued accounting standards and a discussion of how they have affected the Company’s consolidated financial statements:~~ 4.

~~Statement~~Operational Restructuring of ~~Financial~~Connector-Seal ~~Accounting~~Business. ~~Standards~~In ~~No. 160,~~connection ~~“Noncontrolling~~with ~~Interests~~the closing of our connector-seal facility located in ~~Consolidated~~ ~~Financial~~Vienna, ~~Statements~~Ohio, —and anthe ~~Amendment~~relocation of ~~ARB~~production ~~No. 51”~~ to other rubber molding facilities, we have agreed to the following, subject to any changes that the senior, secured lender may agree to:

~~In December 2007, the Financial Accounting Standards Board~~ (“FASB”) issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (“FAS 160”). FAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS 160 is effective for fiscal years beginning on or after December 15, 2008. Based on the Company’s current operations, it does not believe that FAS 160 will have a significant impact on its results of operations or financial position. )

~~Statement~~On or before March 31, 2009, we shall obtain transitional and long-term contracts with customers covering at least 60% of ~~Financial~~our ~~Accounting~~projected ~~Standards~~sales ~~No. 141~~for ~~(Revised~~the ~~2007),~~connector-seal ~~“Business~~business ~~Combinations”~~ for 2010;

~~In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141~~ (~~revised 2007~~b), “Business Combinations” (“FAS 141R”). FAS 141R establishes the principles and requirements for how the acquirer of a business shall recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest in the acquiree. FAS 141R also sets forth guidance on how to recognize and measure goodwill acquired in a business combination or a gain from a bargain purchase and determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of the business combination. FAS 141R is effective for fiscal years beginning after December 15, 2008. Early adoption of FAS 141R is not permitted. Based on its current operations, the Company does not believe that FAS 141R will have a significant impact on its results of operations or financial position.

~~Statement~~The transitional agreements shall provide aggregate revenues of ~~Financial~~not ~~Accounting~~less ~~Standards~~than ~~No. 159~~$900,000 ~~“The~~on ~~Fair~~payment ~~Value~~terms ~~Option~~not ~~for~~to ~~Financial Assets~~exceed ~~and~~net ~~Financial~~30 ~~Liabilities”~~ days;

~~In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”~~ (~~“FAS 159”~~c). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The standard also establishes presentation and disclosure requirements to facilitate comparisons between entities that choose different measurements for similar types of assets and liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect the adoption of FAS 159 will have on its results of operations and financial position.

At least 90% of the inventory banks for the connector-~~53-~~ seal consolidation shall be completed by May 31, 2009; and

~~Table~~- of35 ~~Contents~~-

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ (d)

~~Statement~~The closure of ~~Financial~~the ~~Accounting~~Vienna, ~~Standards No. 157~~Ohio, ~~“Fair~~facility ~~Value~~shall ~~Measurements”~~ be substantially completed by June 30, 2009.

InBecause ~~September 2006,~~we ~~the~~did ~~FASB~~not ~~issued~~meet ~~Statement~~the ofcondition ~~Financial~~set ~~Accounting~~forth ~~Standards~~in ~~No. 157,~~clause ~~“Fair Value Measurements”~~ (~~“FAS 157”~~a). ~~FAS 157 defines fair value~~above, ~~establishes~~the ~~a framework for measuring fair value in U.S. generally accepted accounting principles~~senior, ~~and~~secured ~~expands~~lender ~~disclosures~~has ~~about~~notified ~~fair value.~~us ~~FAS~~that ~~157~~a ~~also~~Termination ~~provides~~Event ~~for~~(as ~~increased~~defined ~~consistency and comparability~~ in ~~fair~~the ~~value measurements.~~Cash ~~FAS~~collateral ~~157~~Order) ~~applies~~has ~~under~~occurred. ~~other~~The ~~accounting~~senior, ~~pronouncements~~secured ~~that~~lender ~~require~~has ~~or permit fair value measurements and does~~ not ~~require~~taken ~~new~~any ~~fair~~action ~~value~~with ~~measurements,~~respect ~~and~~to isthis ~~effective~~Termination ~~for~~Event ~~fiscal years beginning after November 15, 2007,~~ and ~~for~~has ~~interim~~not ~~periods~~indicated ~~within~~any ~~those~~present ~~fiscal~~intention ~~years. In December 2007, the FASB issued FSP FAS 157-b~~ to, iftake ~~adopted~~action, ~~delay~~but ~~the~~has ~~effective~~reserved ~~date~~its ofrights ~~FAS~~under ~~157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed, at least annually, at fair value in~~ the ~~financial~~Cash ~~statements.~~Collateral ~~The Company is currently assessing the impact, if any, that FAS 157 will have on its results of operations and financial position~~Order.

~~Financial~~The ~~Accounting~~senior, ~~Standards~~secured ~~Board~~credit ~~Interpretation~~facility, ~~No. 48~~as amended by the Bankruptcy Court on March 4, ~~“Accounting~~2009, ~~for~~will ~~Uncertainty~~terminate inupon ~~Income~~ ~~Taxes”~~the occurrence of the following events if we fail to cure any of the events within five days of receiving written notice of the event from the senior, secured lender: (a) failure to comply with the financial covenants, (b) dismissal of the chapter 11 case, (c) conversion of the chapter 11 case to a chapter 7 case, (d) appointment of a trustee to manage the financial affairs of the Company, or (e) occurrence of an event of default as described in the documents governing the use of cash collateral.

InAlthough ~~July 2006,~~we ~~the~~cannot ~~FASB~~assure ~~issued~~you ~~Interpretation~~that ~~No. 48,~~we ~~“Accounting~~will ~~for~~be ~~Uncertainty~~successful, inour ~~Income Taxes”~~intent ~~(“FIN~~in ~~48”),~~filing anfor ~~interpretation~~chapter 11 ofprotection ~~Statement~~was ofto use ~~Financial~~the ~~Accounting~~powers ~~Standard~~afforded ~~No. 109, “Accounting~~us ~~for~~under ~~Income~~the ~~Taxes,”~~Bankruptcy ~~(“FAS~~Code ~~109”).~~to ~~FIN~~effect 48a ~~clarifies~~financial ~~the~~restructuring ~~accounting~~that ~~for~~would ~~uncertainty~~result in ~~income~~ ~~taxes~~a ~~recognized~~significant reduction in ~~accordance~~our ~~with~~total ~~FAS~~indebtedness ~~109~~on ~~by prescribing~~ a ~~minimum~~basis ~~recognition threshold~~ that awould ~~tax~~be ~~position~~fair ~~must~~and ~~meet~~equitable ~~before~~to ~~being~~all of ~~recognized~~our increditors ~~financial~~and ~~statements~~stockholders. ~~FIN~~On 48June ~~also provides guidance on derecognition~~30, ~~classification~~2008, ~~interest~~we ~~and~~filed ~~penalties,~~with ~~accounting~~the inBankruptcy ~~interim~~Court ~~periods, and~~a ~~transition.~~plan ~~FIN~~of 48reorganization. ~~was~~On ~~effective~~August ~~for~~8, ~~the~~2008, ~~Company~~we ~~beginning~~filed ~~January 1,~~an ~~2007.~~amended ~~The~~plan ~~adoption~~ of ~~FIN 48~~reorganization, ~~did~~which ~~not~~was ~~affect~~further ~~the~~amended ~~Company’s~~in December ~~results~~2008 of(the ~~operations~~“Amended ~~or financial position~~Plan”). ~~The~~On ~~Company~~December is8, ~~subject to~~2008, ~~federal taxation in~~ the ~~United~~Amended ~~States~~Plan and toa ~~state~~proposed ~~income~~disclosure ~~tax~~statement inwith ~~various~~respect ~~states. The Company remains subject~~ to ~~examination~~the byAmended ~~United~~Plan ~~States~~were ~~federal~~filed ~~taxing~~with ~~authorities~~the ~~and~~Bankruptcy ~~to state taxing~~Court. ~~authorities~~Although ~~for~~we ~~the~~currently ~~years~~plan ~~2004 through 2006 and for any years prior~~ to ~~2004~~complete ~~if, in~~ the ~~future,~~consolidation of the ~~Company~~ ~~uses~~connector-seal ~~operating~~business ~~loss carryforwards from any year~~ prior to ~~2004~~seeking toapproval ~~affect~~of ~~current-period taxable income. Although~~ the ~~Company~~Amended ~~does~~Plan, ~~not~~if ~~anticipate~~the ~~that~~Amended ~~its~~Plan ~~income~~becomes ~~tax~~effective ~~liabilities~~without ~~would significantly~~further ~~increase or decrease upon audit~~amendment, ~~actual~~the following ~~results~~distributions ~~could~~would ~~differ~~be ~~from its estimates.~~ made:

~~Note 2~~ — ~~Other Noncurrent Assets~~

The Company has paid a portion of the cost of certain tooling that was purchased by customers and is being used by the Company to produce components under long-term supply arrangements. The payments have been recorded as a noncurrent asset and are being amortized on a straight-line basis over three years orsenior, ifsecured ~~shorter,~~credit ~~the~~facility ~~period~~would ~~during~~be ~~which~~repaid ~~the~~in ~~tooling~~full isin expected to produce components. At December 31, 2007 and 2006, noncurrent assets included $449,000 and $634,000, respectively, of unamortized capitalized payments. During 2007, 2006, and 2005, the Company amortized $497,000, $459,000, and $476,000, respectively, of such capitalized payments. cash;

~~-54-~~ —

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ —

Each holder of a Senior Subordinated Note 3claim —would ~~Accrued~~receive ~~Expenses~~shares of new Series C Preferred Stock with an aggregate liquidation preference equal to their claim, ~~excluding~~increasing ~~Interest~~at ~~Expense~~ the rate of 6% per annum, and convertible into common stock at $4.46 per share; and

~~Accrued expenses, excluding interest expense, at December 31, 2007 and 2006, are summarized below (dollar amounts in thousands):~~ —

	December 31
	2007		2006
Employee fringe benefits	$	2,617	$	2,530
Salaries and wages		298		356
Taxes		148		117
Other		869		786
	$	3,932	$	3,789

Each holder of a Junior Subordinated Note claim and a Series B Preferred Stock interest would receive new shares of common stock with a value equal to their claim or interest.

~~Note~~If 4the —Amended ~~Debt~~ Plan had become effective on December 31, 2008, $48,407,000 of our liabilities would have been converted into equity securities. For a detailed description of the Amended Plan, the classification and treatment of claims and interests, and the proposed terms of the Series C Preferred Stock, please refer to the proposed disclosure statement filed with the Bankruptcy Court on December 8, 2008. The proposed disclosure statement along with other documents related to the chapter 11 proceedings can be found at http://chapter11.epiqsystems.com/lexington.

~~Debt~~We atcannot ~~December 31,~~assure ~~2007~~you ~~and~~that ~~2006~~the Amended Plan will be confirmed. The Amended Plan may be further amended. If the Amended Plan is ~~set~~not ~~forth~~confirmed ~~below~~by ~~(dollar~~the ~~amounts~~Bankruptcy inCourt, ~~thousands):~~ it is unclear what holders of claims or equity interests would ultimately receive with respect to their claims or interests.

	December 31
	2007			2006
Debt in default:
Senior, secured credit facility:
Revolving line of credit	$	10,632		$	8,369
Equipment term loan		9,167			11,666
Real estate term loan		14,022			14,755
Subtotal		33,821			34,790
Senior Subordinated Notes		34,177			34,177
Junior Subordinated Note		347			—
Total debt in default		68,345			68,967
Current portion of long-term debt		741			734
Long-term debt:
Junior Subordinated Note		—			347
Series B Preferred Stock		660			657
Other		86			136
Subtotal		746			1,140
Less current portion		(741	)		(734	)
Total long-term debt		5			406
Total debt	$	69,091		$	70,107

- 36 -

~~-55-~~ Our aggregate indebtedness at December 31, 2008, totaled $73,375,000 plus $13,164,000 of accrued interest on our subordinated debt, compared to $69,091,000 plus $7,564,000 of accrued interest on our subordinated debt at December 31, 2007.

~~Table~~Including liabilities classified as subject to compromise, we had a net working capital deficit of ~~Contents~~$73,922,000 at December 31, 2008, compared to a net working capital deficit of $65,894,000 at December 31, 2007.

~~NOTES~~The TOrisks ~~CONSOLIDATED~~and ~~FINANCIAL~~uncertainties ~~STATEMENTS~~ associated with the chapter 11 proceedings, including our ability to operate pursuant to the terms of our debtor-in-possession credit arrangements, our ability to obtain court approvals with respect to motions in the chapter 11 proceedings, our ability to obtain financing that will permit us to exit chapter 11, and our ability to develop, confirm, and consummate a plan of reorganization with respect to the chapter 11 proceedings, may have a material adverse effect on our results of operations and financial position.

~~Senior~~Our consolidated financial statements have been prepared on a “going concern basis,” ~~Secured~~as ~~Credit~~such ~~Facility~~ term is used in U.S. generally accepted accounting principles. A going concern basis contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to restructure, refinance, or repay our indebtedness is subject to risks and uncertainties. As a result, there is substantial doubt about our ability to continue to report on a going concern basis. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect these risks and uncertainties.

OnOff-Balance ~~December 31,~~Sheet ~~2007, prior to its chapter 11 filing, the Company had available a senior, secured credit facility consisting of the following:~~ Arrangements

1.We Ahave ~~$17,500,000~~no ~~revolving~~material line of credit that had a stated maturity of May 15, 2009. At December 31, 2007, there were $10,632,000 of loans and $907,000 of letters of credit outstanding under the revolving line of credit, and unused availability was $1,433,000. The revolving line of credit, loans and reimbursement obligations with respect to letters of credit were limited to the lesser of $17,500,000 or an amount equal to (1) 85% of eligible accounts receivable, plus (2) the lesser of 65% of eligible inventories or 51% of eligible accounts receivable, minus (3) $500,000. The contractual interest rate on loans under the revolving line of credit was LIBOR plus 2.75%. The Company’s obligations under the revolving line of credit are secured by a first priority lien on substantially all of the Company’s assets other than real estate and a second priority lien on the Company’s real estate. 2. An equipment term loan with an outstanding principal off-balance ofsheet ~~$9,167,000 at December 31, 2007~~arrangements. The equipment term loan is payable in monthly principal installments of $208,000 through May 1, 2009, with the unpaid balance payable on May 15, 2009. The contractual rate of interest on the equipment term loan is LIBOR plus 4.5%. The equipment term loan is secured by a first priority lien on substantially all of the Company’s assets other than real estate and a second priority lien on the Company’s real estate. 3. A real estate term loan with an outstanding principal balance of $14,022,000 at December 31, 2007. The real estate term loan is payable in monthly principal installments of $61,000 through May 1, 2009, with the unpaid balance payable on May 15, 2009. The contractual interest rates on the real estate term loan were the prime rate plus 6% as to $4,000,000 principal amount and LIBOR plus 4.5% as to the balance. Principal payments made on the real estate term loan are allocable first to the portion of the loan that bears interest at LIBOR plus 4.5% and then to the portion of the loan that bears interest at the prime rate plus 6%. The real estate term loan is secured by a first priority lien on the Company’s real estate and a second priority lien on substantially all of the Company’s other assets.

All of the loans under the senior, secured credit facility were classified as debt in default at December 31, 2007, and the interest rates on all of these loans were increased by 2% from February 1, 2007, through March 31, 2008. At December 31, 2007, the interest rates on the revolving loans and the equipment term loan were 9.82% and 11.56%, respectively, and the weighted average interest rate on the real estate term loan was 12.64%. Inflation

AtWe ~~December 31,~~generally ~~2007,~~attempt ~~the~~to ~~agreements~~pass ~~governing~~through ~~the~~to ~~revolving~~our ~~line~~customers offluctuations ~~credit~~in ~~and~~raw ~~the~~material ~~secured term~~costs; ~~loans~~however, ~~contained~~many ~~covenants~~of ~~that~~our ~~(1) required~~customers ~~the~~will ~~Company~~not toaccept ~~maintain~~price aincreases ~~maximum~~from ~~ratio~~us ~~of senior debt~~ to ~~earnings~~compensate ~~before~~for ~~interest,~~increases ~~taxes,~~in ~~depreciation~~labor and ~~amortization~~overhead ~~(“EBITDA”)~~expenses ~~and~~that ~~minimum levels~~result offrom ~~fixed~~inflation. ~~charge~~To ~~coverage,~~offset ~~revenue,~~inflationary ~~and~~increases ~~EBITDA,~~in ~~(2) limited~~costs ~~the~~that ~~Company’s~~we ~~capital expenditures~~cannot topass ~~$5,500,000~~through ~~and~~to ~~$6,000,000~~our ~~per~~customers ~~annum~~and ~~during~~to ~~the~~maintain ~~years~~or ~~ending~~improve ~~December 31,~~our ~~2007~~operating ~~and 2008~~margins, ~~respectively,~~we ~~(3) limited~~attempt ~~the~~to ~~amount~~improve ofour ~~new~~production ~~secured~~efficiencies ~~financing~~and ~~that~~manufacturing ~~the~~processes. ~~Company~~We ~~can~~believe ~~incur~~that, ~~for the~~over ~~purchase~~time, ofprices ~~plant~~are ~~and~~affected ~~equipment~~by tomany $2factors,~~500,000~~ ~~during~~but that the ~~term~~price ofwe can charge our customers is governed by the ~~revolving~~competitive ~~line~~pricing ofset ~~credit~~by the marketplace, ~~and~~ ~~(4) placed~~rather ~~certain~~than ~~other~~by ~~restrictions~~increases onor ~~the~~decreases ~~Company’s~~in ~~business~~particular ~~and~~components ~~operations,~~of ~~including limitations~~our on cost.

~~-56-~~ Environmental Matters

~~Table~~We have been named from time to time as one of ~~Contents~~numerous potentially responsible parties or third-party defendants under applicable environmental laws for restoration costs at waste-disposal sites, and as a defendant or potential defendant in various other environmental law matters. It is our policy to record accruals for matters of these types when we deem a loss to be probable and we can reasonably estimate the amount of that loss. The various actions to which we are or may in the future be a party are at various stages of completion. Although we cannot assure you as to the outcome of existing or potential environmental litigation we believe, based upon the information currently available to us, that the outcome thereof will not have a material adverse effect upon our results of operations or financial condition.

~~NOTES~~- TO37 ~~CONSOLIDATED FINANCIAL STATEMENTS~~ -

~~the~~Quarterly ~~sale~~Financial ~~of all or substantially all of its assets, the repurchase of common stock, the redemption of preferred stock, and the payment of cash dividends.~~ Data

OnFor ~~April 1,~~quarterly ~~2008,~~financial ~~Lexington~~data ~~Precision~~please ~~Corporation~~refer ~~and~~to ~~its~~Note ~~wholly-owned subsidiary~~15, ~~Lexington Rubber~~“Quarterly ~~Group,~~Financial ~~Inc.~~Data,” ~~filed voluntary petitions~~ in the ~~United~~notes ~~States~~to ~~Bankruptcy~~our ~~Court~~consolidated ~~for~~financial ~~the Southern~~statements ~~District~~in ofPart ~~New~~II, ~~York~~Item ~~seeking reorganization relief under the provisions of chapter 11 of the United States Bankruptcy Code~~8.

InCritical ~~connection~~Accounting ~~with~~Policies ~~the~~and ~~financing arrangements for the Company’s chapter 11 proceedings, the senior, secured credit facility was modified in the following manner:~~ Estimates

1.Our ~~The~~accounting ~~interest~~policies ~~rates~~are onmore ~~all~~fully ofdescribed ~~the~~in ~~senior~~Note 1, ~~secured~~“Summary ~~loans~~of ~~were~~Significant ~~reduced~~Accounting toPolicies,” in the ~~contractual~~notes ~~rates.~~to 2.our ~~The~~consolidated ~~principal~~financial ~~amount~~statements ofin ~~loans~~Part ~~under~~II, ~~the~~Item ~~revolving~~8. The ~~line~~preparation of ~~credit~~our ~~was~~consolidated ~~fixed~~financial atstatements ~~$14,219,000~~in ~~for~~conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the ~~term~~reported amounts of assets and liabilities and the ~~chapter~~reported 11amounts ~~proceedings.~~of 3.revenues ~~The~~and ~~Company~~expenses ~~agreed~~during toeach ~~continue~~reporting toperiod. ~~make~~Actual ~~the~~results ~~regular~~could ~~monthly~~differ ~~principal~~from ~~payments~~those ofestimates. ~~$208,000~~The onsignificant estimates included in the ~~equipment~~preparation ~~term~~of ~~loan,~~our ~~which~~financial ~~had~~statements anare ~~outstanding~~related ~~principal~~to ~~balance~~valuation of $8accounts receivable,~~333~~ inventories,~~000~~ onlong-lived ~~the~~assets, ~~filing~~and ~~date,~~goodwill and ~~$61,000~~estimates onrelated to the ~~real~~determination ~~estate~~of ~~term~~liabilities ~~loan,~~for ~~which~~environmental ~~had~~matters, anlitigation, ~~outstanding~~product ~~principal~~liability ~~balance~~matters, ofincome ~~$13~~taxes,~~778,000~~ onand ~~the~~other ~~filing date~~contingencies.

~~Since~~We ~~the~~believe ~~filing~~that ofthe ~~chapter~~most 11critical onaccounting ~~April 1,~~policies ~~2008,~~inherent in the ~~financial~~preparation ~~covenants~~of ~~have~~our ~~been~~consolidated ~~modified~~financial ~~as follows~~statements are the following:

1.Going ~~Minimum~~Concern ~~Cash.~~Basis The Company’s aggregate cash must exceed $1,000,000 on May 2, 2008, and $500,000 on May 30, 2008, and on the last day of each four-week period thereafter. At May 2, 2008, aggregate cash was $7,538,000. 2. Maximum Expenditures. The Company’s cumulative expenditures must be less than 110% of budgeted cumulative expenditures. At May 2, 2008, cumulative expenditures were $2,756,000 less than 110% of budgeted cumulative expenditures. 3. Minimum Net Sales. The Company’s cumulative net sales must be greater than 90% of budgeted net sales. At May 2, 2008, cumulative net sales exceeded 90% of budgeted cumulative net sales by $596,000.

~~Also,~~Our ~~the~~consolidated ~~Company’s~~financial ~~postpetition~~statements ~~financing~~have ~~with~~been ~~the~~prepared ~~senior~~on a “going concern basis,” ~~secured~~as ~~lenders~~such ~~will~~term ~~terminate~~is ~~if it~~used ~~does~~in ~~not~~U.S. ~~file~~generally aaccepted ~~plan~~accounting ofprinciples. ~~reorganization~~A ~~providing~~going ~~for~~concern basis contemplates the ~~payment~~realization of assets and the ~~prepetition~~satisfaction ~~senior, secured~~of ~~debt~~liabilities byin ~~June 30~~the normal course of business. Our ability to restructure, ~~2008~~refinance, ~~file~~or arepay ~~disclosure~~our ~~statement~~indebtedness ~~regarding~~is ~~such~~subject ~~plan~~to byrisks ~~July 30,~~and ~~2008~~uncertainties. As a result, ~~and~~ ~~consummate~~there ~~such~~is ~~plan~~substantial ~~and~~doubt ~~emerge~~about ~~from~~our ~~chapter~~ability 11to bycontinue ~~February 25,~~to ~~2009~~report on a going concern basis. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect these risks and uncertainties.

~~Senior~~Valuation ~~Subordinated~~of ~~Notes~~ Accounts Receivable and Provision for Credit Losses

~~The~~We ~~Senior~~record ~~Subordinated~~accounts ~~Notes~~receivable ~~mature~~due onfrom ~~August 1,~~our ~~2009,~~customers ~~and~~at ~~are~~the ~~unsecured~~time ~~obligations, subordinated~~a sale is recorded in ~~right~~accordance ofwith ~~payment~~our torevenue ~~all~~recognition ofpolicy. ~~the~~The ~~Company’s~~markets ~~existing~~we ~~and~~serve ~~future~~are ~~senior~~characterized ~~debt.~~by ~~The Senior~~intense ~~Subordinated~~price ~~Notes~~competition ~~bear~~and ~~interest~~increasing atcustomer ~~12%~~requirements ~~per~~for ~~annum~~quality and service. These factors, ~~payable~~among ~~quarterly~~others, may have an adverse effect on ~~February 1~~the operating results and financial condition of specific customers, ~~May 1~~and, ~~August 1~~ in turn, ~~and~~on ~~November~~the 1collectibility of our accounts receivable from those customers. ~~The~~We ~~Company~~attempt ~~did~~to ~~not~~mitigate ~~make~~this ~~the~~risk ~~interest~~of ~~payment~~loss ~~that~~through ~~was~~ongoing ~~due~~evaluations onof ~~November 1~~market conditions, ~~2006~~ examinations of financial statements of our customers, orand ~~any~~discussions with management of ~~the~~our ~~quarterly~~customers, ~~payments~~as ~~since~~deemed ~~that~~necessary. ~~date~~Provisions for credit losses are based upon historical experience and such ongoing evaluations. ~~Pursuant~~We togenerally ado ~~forbearance~~not ~~agreement~~require ~~between~~ collateral from our customers to support the ~~Company~~ extension of trade credit.

~~-57-~~ Valuation of Inventory

~~Table~~Inventory is valued at the lower of ~~Contents~~cost (first-in, first-out method) or market. We evaluate our inventory on a quarterly basis to ensure that it is properly valued. We record allowances against inventory where appropriate to provide for losses due to obsolescence, lower of cost or market valuations, excess quantities on hand, and certain other factors. In doing so, we apply consistent practices, which include the identification of potentially unmarketable inventory based on assumptions about future demand and historical usage rates, specific identification of components that are being replaced with new generation components, and actual margins generated from the sales of our components.

~~NOTES~~- TO38 ~~CONSOLIDATED FINANCIAL STATEMENTS~~ -

~~and~~Valuation ~~a group~~ of ~~six~~Long-Lived ~~hedge~~Assets ~~funds~~other ~~that~~than hold approximately 74.4% of the Senior Subordinated Notes, the interest rate on the Senior Subordinated Notes was increased to 16% effective March 9, 2007. Upon the commencement of the chapter 11 proceedings, the interest rate on the Senior Subordinated Notes was reduced to 12%. Goodwill

~~Junior~~We ~~Subordinated~~evaluate ~~Note~~ for impairment our plant and equipment and other long-term, assets other than goodwill when events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable. Changes in technology or in our use of these assets may cause the original estimated useful lives of these assets to change and result in the impairment of these assets.

~~The~~When ~~Junior~~performing ~~Subordinated~~this ~~Note~~evaluation, ~~matures~~we onprepare ~~November 1,~~a ~~2009,~~projection ~~and~~of isthe future cash flow we will derive from an ~~unsecured~~asset ~~obligation~~or group of assets. If the ~~Company~~projected ~~that~~cash flow is ~~subordinated~~less inthan ~~right~~the carrying value of ~~payment~~the asset or asset group, we recognize an impairment loss equal to ~~all~~the excess, if any, of the ~~Company’s~~carrying ~~existing~~value ~~and~~of ~~future senior~~the ~~debt~~asset ~~and~~or ~~the~~asset ~~Senior~~group ~~Subordinated~~over ~~Notes~~its appraised fair value, net of estimated disposal costs. ~~The~~Although ~~Junior~~we ~~Subordinated~~believe ~~Note~~that ~~bears~~our ~~interest~~projections atof ~~13% per~~future ~~annum~~cash flows are reasonable, ~~payable~~changes ~~quarterly~~in onunit ~~February 1~~sales, ~~May 1~~pricing, ~~August 1,~~cost ~~and~~of ~~November~~goods 1.sold, Atand ~~December 31,~~other ~~2007, accrued~~factors ~~interest~~could onsignificantly affect the ~~Junior~~accuracy ~~Subordinated~~of ~~Note~~our ~~totaled~~cash ~~$64,000~~flow projections.

~~Series B~~Valuation ~~Preferred~~of ~~Stock~~ Goodwill

At December 31, ~~2007,~~2008 ~~there~~and ~~were 3~~2007,~~300~~ ~~shares~~our ofunamortized ~~the~~goodwill ~~Company’s~~totaled $87,623,000, ~~Cumulative~~which ~~Convertible Preferred~~related ~~Stock,~~entirely ~~Series B~~to (the ~~“Series B~~Rubber ~~Preferred~~Group. ~~Stock”),~~At ~~par~~December ~~value $100 per share~~31, ~~outstanding with a carrying value of $660~~2008,~~000.~~ ~~Each~~the ~~share~~ assets of ~~Series B~~the ~~Preferred~~Rubber ~~Stock~~Group, isincluding ~~(1) entitled to one vote~~goodwill, ~~(2) redeemable~~totaled ~~for~~ $~~200~~38,527,000. ~~plus~~In ~~accumulated and unpaid dividends~~2008, ~~(3) convertible~~EBITDA ~~into 14.8148 shares~~ of ~~common~~the ~~stock~~Rubber ~~(subject~~Group towas ~~adjustment)~~$11, ~~and (4) entitled~~442,000. ~~upon~~In ~~voluntary~~connection orwith ~~involuntary liquidation~~our ~~and~~chapter ~~after~~11 ~~payment~~proceedings, ofW.Y. Campbell ~~all~~& ~~liabilities of the~~ Company, tohas aprepared ~~liquidation~~several ~~preference~~analyses of ~~$200~~the ~~plus~~value ~~accumulated~~of ~~and~~the ~~unpaid~~Rubber ~~dividends.~~Group ~~Redemptions~~that ofconcluded ~~$90,000~~that ~~are~~the ~~scheduled~~fair onvalue ~~November 30~~ of ~~each~~ ~~year~~the inRubber ~~order~~Group tois ~~retire~~in ~~450~~excess ~~shares~~ of ~~Series B~~its ~~Preferred~~carrying ~~Stock annually~~value. ~~The~~Tests ~~Company~~for ~~did~~impairment ~~not make~~of ~~scheduled~~goodwill ~~redemptions~~are inperformed ~~the~~using ~~aggregate~~a ~~amount~~fair ofvalue ~~$660,000~~approach during the ~~years~~fourth ~~2000~~quarter ~~through 2007,~~of ~~and~~each ~~the~~year ~~Company did not make the scheduled dividend payments on the Series B Preferred Stock on December 15, 2006,~~ and ~~March 15,~~at ~~June 15,~~other ~~September 15,~~times ~~and~~when ~~December 15,~~events ~~2007,~~or changes in ~~the~~circumstances ~~aggregate amount~~indicate ofpossible ~~$33,000~~impairment.

~~The~~Revenue Series B Preferred Stock is classified as debt in the consolidated financial statements in accordance with the provisions of Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” Recognition

~~Fair~~All ~~Value~~of our revenues result from the sale of ~~Financial~~rubber ~~Instruments~~ and metal components and mixed rubber compounds. We recognize revenue from the sale of these items when title and risk of loss pass to our customers according to shipping schedules and terms of sale mutually agreed to by us and our customers. Shipping and handling costs are typically paid by the customer. If paid by us, shipping and handling costs are included in cost of sales. Accruals for sales returns and certain other sales allowances are recorded at the time of shipment based primarily on historical experience; these accruals may be adjusted subsequent to the date of shipment as new information becomes available.

The Company believes that, at December 31, 2007, the fair values of the loans outstanding under the revolving line of credit, the equipment term loan, and the real estate term loan approximated the principal amounts of such loans. Other

~~Because~~Other ofcritical ~~the~~accounting ~~limited~~policies ~~trading~~include inestimates ~~the~~used ~~Company’s~~to ~~various~~determine ~~unsecured~~liabilities ~~debt~~related ~~securities~~to environmental matters, ~~the~~litigation, ~~Company is~~product ~~unable~~liability tomatters, ~~express~~self-insurance, anincome ~~opinion~~taxes, asand toother ~~the~~contingencies. ~~fair~~The ~~value~~process of ~~the~~making ~~Senior~~estimates ~~Subordinated~~takes ~~Notes~~into account historical experience, ~~the~~specific ~~Junior Subordinated~~facts ~~Note~~and circumstances, orpresent and projected economic and business conditions, projected unit volumes, projected operating efficiencies, and other relevant factors and assumptions. We reevaluate our estimates whenever factors relevant to the ~~Series B~~making ~~Preferred~~of ~~Stock~~the estimates change.

~~Cash~~Recently ~~Interest~~Issued ~~Paid~~ Accounting Standards

~~Cash~~Listed ~~interest~~below ~~paid~~are ~~during~~recently ~~2007,~~issued ~~2006,~~accounting standards and ~~2005,~~a ~~including~~discussion ~~amounts~~of ~~allocated~~how tothey ~~discontinued operations,~~have ~~totaled~~affected ~~$4,431,000,~~or ~~$6,749,000,~~will ~~and~~affect ~~$8,196,000,~~our ~~respectively.~~ consolidated financial statements:

-58 39 -

~~Table~~Staff ofPosition ~~Contents~~APB 14-1, “Accounting for Convertible Debt Instruments that May Be Settled in Cash upon Conversion”

~~NOTES~~ In TOMay ~~CONSOLIDATED~~2008, ~~FINANCIAL~~the ~~STATEMENTS~~Financial Accounting Standards Board (“FASB”) issued Staff Position APB 14-1, “Accounting for Convertible Debt Instruments that May Be Settled in Cash upon Conversion” (“FSP APB 14-1”). FSP APB 14-1 requires issuers of convertible debt instruments to separately account for the liability and equity components of interest cost recognized in future periods on convertible debt instruments in a manner that will reflect the entity’s nonconvertible debt borrowing rate on the date the instrument was issued. FSP APB 14-1 is effective for fiscal years after December 15, 2008, and interim periods within those fiscal years, and must be applied to all periods presented. Based on our current operations, we do not believe that the adoption of FSP APB 14-1 will have a significant impact on our results of operations or financial position.

~~Non-Cash~~Statement ~~Investing~~of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and ~~Financing~~Hedging Activities – An Amendment of FASB Statement 133”

~~Capital~~On ~~expenditures~~March ~~for~~19, ~~2007~~2008, ~~included~~the ~~$28~~FASB issued Statement of Financial Accounting Standards No. 161,~~000~~ “Disclosures about Derivative Instruments and Hedging Activities – An Amendment of ~~equipment~~FASB ~~purchased~~Statement ~~under~~133” ~~capitalized~~(“FAS ~~lease obligations.~~161”), ~~Also~~which ~~during~~enhanced ~~2007~~required disclosures regarding derivatives and hedging activities, ~~the~~including ~~Company~~enhanced ~~received~~disclosures 8regarding how: (1) an entity uses derivative instruments,~~198~~ ~~shares~~(2) ofderivative ~~Class A~~instruments ~~Common~~and ~~Stock~~related ~~of Federal-Mogul~~hedged ~~Corporation~~items ~~with~~are aaccounted ~~value~~for ofunder ~~$214~~FASB Statement No. 133,~~000~~ as“Accounting offor ~~December 31~~Derivative Instruments and Hedging Activities,” ~~2007~~and (3) derivative instruments and related hedged items affect an entity’s financial position, infinancial ~~full~~performance, ~~satisfaction~~and ~~of its~~cash ~~prepetition~~flows. ~~bankruptcy~~FAS ~~claim~~161 ~~against~~is ~~Federal-Mogul~~effective for fiscal years and interim periods beginning on or after November 15, 2008. ~~The~~Based ~~Company~~on ~~obtained~~our ~~seller~~current ~~financing~~operations, ~~for the~~we ~~purchase~~do ofnot ~~equipment~~believe inthat ~~the~~FAS ~~aggregate~~161 ~~amount~~will have a significant impact on our results of ~~$157,000~~operations inor ~~2006.~~financial position.

~~Note~~Statement 5of —Financial ~~Common~~Accounting ~~Stock,~~Standards ~~Warrants~~No. 160, ~~and~~“Noncontrolling ~~Other~~Interests ~~Equity~~in ~~Securities~~ Consolidated Financial Statements – an Amendment of ARB No. 51”

~~Common~~In ~~Stock~~December 2007, $the FASB issued Statement of Financial Accounting Standards No.25 ~~Par~~160, ~~Value~~“Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51 (“FAS 160”). FAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Among other things, FAS 160 also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements separate from the parent company’s equity, and that the amount of net income attributable to the noncontrolling interest should be included in consolidated net income on the face of the income statement. FAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Based on our current operations, we do not believe that FAS 160 will have a significant impact on our results of operations or financial position.

AtStatement ~~December 31, 2007, there were 5,021,767 shares~~ of ~~the~~Financial ~~Company’s~~Accounting ~~common~~Standards ~~stock~~No. ~~outstanding, 48,889~~141 ~~shares~~(Revised ~~reserved for issuance on the conversion of the Series B Preferred Stock~~2007), ~~and~~“Business ~~310,000 shares~~Combinations” ~~reserved for issuance under the Company’s 2005 Stock Award Plan.~~

~~Warrants~~ In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141R”). FAS 141R establishes the principles and requirements for how the acquirer of a business shall recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest in the acquiree. FAS 141R also sets forth guidance on how to recognize and measure goodwill acquired in a business combination or a gain from a bargain purchase and determines what information to disclose to enable

At- ~~each~~40 of December 31, 2007 and 2006, there were 345,237 warrants outstanding, each of which entitles the holder to purchase one share of the Company’s common stock for $3.50 from August 1, 2005, through August 1, 2009. Because the exercise price of the warrants substantially exceeded the market price of the Company’s common stock at the date of issuance, the Company did not record any expense related to the issuance. -

~~Other~~users ~~Authorized~~of ~~Preferred~~financial ~~Stock~~ statements to evaluate the nature and financial effects of the business combination. FAS 141R is effective for fiscal years beginning after December 15, 2008. Based on our current operations, we do not believe that FAS 141R will have a significant impact on our results of operations or financial position.

~~The~~Statement ~~Company’s restated certificate~~ of ~~incorporation~~Financial ~~provides~~Accounting ~~that~~Standards ~~the~~No. ~~Company is authorized to issue 2~~157,~~500~~ ~~shares~~“Fair ofValue 6% Cumulative Convertible Preferred Stock, Series A, par value $100 per share, and 2,500,000 shares of other preferred stock having a par value of $1 per share. No shares of either of these classes of preferred stock have been issued. Measurements”

~~Note~~In 6September —2006, ~~Employee~~the ~~Benefit~~FASB ~~Plans~~issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value when using U.S. generally accepted accounting principles, and expands disclosures about fair value. FAS 157 also provides for increased consistency and comparability in fair value measurements. FAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require new fair value measurements, and is effective for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. In February 2008, the FASB issued Staff Position FAS157-2, “Effective Date of FASB Statement No. 157”(“FSP 157-2”), which defers the effective date of FAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on an annual basis. In accordance with FSP 157-2, we have only adopted the provisions of FAS 157 with respect to our financial assets and financial liabilities that were measured at fair value in our financial statements since January 1, 2008. At December 31, 2008, these assets and liabilities consisted only of marketable securities. The provisions of FAS 157 have not been applied to non-financial assets and non-financial liabilities.

~~Retirement~~Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and ~~Savings~~Financial ~~Plan~~ Liabilities”

~~The~~In ~~Company~~February ~~maintains~~2007, athe ~~retirement~~FASB ~~and~~issued ~~savings~~Statement ~~plan~~of ~~pursuant~~Financial toAccounting ~~Section 401~~Standards ofNo. ~~the~~159, ~~Internal Revenue~~“The ~~Code~~Fair (aValue ~~“401(k)~~Option ~~plan”).~~for ~~All~~Financial ~~employees~~Assets ofand ~~the~~Financial ~~Company~~Liabilities” ~~are~~(“FAS ~~entitled~~159”). toFAS ~~participate~~159 inpermits ~~the 401(k)~~entities ~~plan~~to ~~after~~choose ~~meeting~~to ~~the~~measure ~~eligibility~~many ~~requirements.~~financial ~~Employees~~instruments ~~may~~and ~~generally~~certain ~~contribute~~other upitems ~~to 60%~~at offair ~~their~~value ~~annual~~that ~~compensation~~are ~~but~~ not ~~more~~currently ~~than~~required ~~prescribed~~to ~~dollar~~be ~~amounts~~measured ~~established~~at byfair ~~the United~~value. ~~States~~FAS ~~Secretary~~159 ofalso ~~the~~establishes ~~Treasury.~~presentation ~~Employee~~and ~~contributions,~~disclosure uprequirements to afacilitate ~~maximum~~comparisons ofbetween 6%entities ofthat ~~an employee’s~~choose ~~compensation,~~different ~~are~~measurements ~~matched~~for ~~50%~~similar bytypes ~~the~~of ~~Company.~~assets ~~During 2007, 2006,~~ and ~~2005,~~liabilities. ~~matching contributions~~FAS ~~made~~159 byis ~~the~~effective ~~Company~~for ~~totaled~~fiscal ~~$432,000,~~years ~~$443,000,~~beginning ~~and~~after ~~$456~~November 15,~~000,~~ ~~respectively~~2007. ~~Company contributions~~We toadopted ~~the~~FAS ~~401(k)~~159 ~~plan~~on ~~vest~~January at1, a2008, ~~rate~~and ofhave ~~20%~~elected ~~per~~not ~~year~~to ~~commencing~~apply ~~after~~ the ~~participant’s second~~fair ~~year~~value ofoption ~~service;~~to ~~the~~any ~~participant~~of ~~becomes~~our ~~fully~~financial ~~vested after six years of service~~instruments.

~~-59-~~ Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Table~~We do not invest in or trade market risk sensitive instruments. We also do not have any foreign operations or any significant amount of ~~Contents~~foreign sales and, therefore, we believe that our exposure to foreign currency exchange rate risk is insignificant. At December 31, 2008, we had outstanding $38,175,000 of floating-rate debt at interest rates equal to either LIBOR plus 2.75%, LIBOR plus 4.5%, prime rate plus 6%, or LIBOR plus 7%, subject to a minimum interest rate of 10%. At December 31, 2008, we had outstanding $35,200,000 of fixed-rate debt with a weighted-average interest rate of 11.9%. We estimate that a one-percentage-point increase or decrease in both LIBOR and the prime rate would increase or decrease our monthly interest expense by approximately $32,000. For further information about our indebtedness, please refer to Note 5, “Debt,” in the notes to our consolidated financial statements in Part II, Item 8.

~~NOTES~~- TO41 ~~CONSOLIDATED FINANCIAL STATEMENTS~~ -

~~Incentive~~Item ~~Compensation~~8. ~~Plan~~ FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

~~The~~Table ~~Company has an incentive compensation plan that provides for the payment~~ of annual cash bonus awards to certain officers and key employees of the Company if specified targets are met. The Compensation Committee of the Company’s Board of Directors, which consists of two directors who are not employees of the Company, oversees the administration of the incentive compensation plan and approves the cash bonus awards. Bonus awards for eligible employees at our operating divisions are typically based upon the attainment of predetermined targets for earnings before interest, taxes, depreciation, and amortization (“EBITDA”) at each operating division. Bonus awards for corporate officers are typically based upon the attainment of predetermined consolidated EBITDA targets. The consolidated financial statements include provisions for bonuses totaling $77,000 and $136,000 in 2007 and 2006, respectively. No cash bonus awards were provided for in 2005. Contents

2005 Stock Award Plan

				Page
Report of Malin, Bergquist & Company, LLP, Independent Registered Public Accounting Firm (for 2008 and 2007)					43
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (for 2006)					44
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007, and 2006					45
Consolidated Balance Sheets at December 31, 2008 and 2007					46
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2008, 2007, and 2006					48
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007, and 2006					49
Notes to Consolidated Financial Statements					50

~~The~~- ~~Company~~42 also has a plan that permits it to award incentive stock options, nonqualified stock options, stock appreciation rights, awards of restricted common stock, performance shares, and performance units to directors, employees, or consultants of the Company (the “2005 Stock Award Plan” or the “Plan”). Under the Plan, the maximum number of shares of common stock that may be granted or optioned to eligible participants is 400,000 and the maximum grant to any eligible participant in a fiscal year for each type of award is set forth below: -

~~Stock~~REPORT ~~options:~~OF ~~50,000~~INDEPENDENT ~~shares Stock~~REGISTERED ~~appreciation~~PUBLIC ~~rights:~~ACCOUNTING ~~50,000 shares Restricted stock: 50,000 shares Performance shares: fair market value of 50,000 shares Performance units: fair market value up to $100,000~~ FIRM

OnTo ~~January 26, 2006, 50,000 shares of restricted common stock were awarded to a key employee of~~ the ~~Company~~Board ~~and, on October 9, 2007, 10,000 shares~~ of ~~restricted~~Directors ~~common stock were awarded to each of the Company’s four outside directors. The price per common share on the respective grant dates was $0.79~~ and ~~$0.70,~~Stockholders respectively. The Restricted Stock Award Agreement governing the shares granted on January 26, 2006, specifies that 10,000 shares vest on March 31, 2006, and 10,000 shares on each March 31 thereafter until all of the shares granted are vested. The Restricted Stock Award Agreements governing the shares granted on October 9, 2007, specify that, for each grant, 2,000 shares will vest on each subsequent anniversary date of October 9 until all shares granted are vested. If a grantee leaves the Company prior to shares becoming fully vested, any unvested shares will be returned to the Company. Compensation expense equal to the market value of the shares on the date of grant will be charged to earnings over the respective vesting periods. During 2007 and 2006, the Company’s restricted stock amortization expense totaled $9,000 and $14,000, respectively. No restricted stock amortization expense was recorded during 2005.

~~-60-~~ Lexington Precision Corporation and Subsidiary

~~Table~~We have audited the accompanying consolidated balance sheets of ~~Contents~~Lexington Precision Corporation and subsidiary as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. Our audit also included the financial statement schedule in Part IV, Item 15. Lexington Precision Corporation’s management is responsible for these consolidated financial statements and schedule. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

~~NOTES~~We TOconducted ~~CONSOLIDATED~~our ~~FINANCIAL~~audit ~~STATEMENTS~~in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

~~Note~~In 7our —opinion, ~~Income~~the ~~Taxes~~ consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lexington Precision Corporation and subsidiary as of December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

~~Income~~The ~~taxes~~accompanying ~~are~~consolidated ~~accounted~~financial ~~for~~statements inhave ~~accordance~~been ~~with~~prepared ~~Financial~~assuming ~~Accounting~~that ~~Standards~~Lexington ~~Board Statement~~Precision ofCorporation ~~Financial~~and ~~Accounting~~subsidiary ~~Standards~~will Nocontinue as a going concern. ~~109~~ As more fully described in Notes 1 and 5, ~~“Accounting~~on ~~for~~April ~~Income~~1, ~~Taxes~~2008, Lexington Precision Corporation and Lexington Rubber Group, Inc. (collectively, the “Debtors”) ~~Deferred~~filed ~~tax assets~~voluntary ~~are~~petitions ~~reduced~~seeking byreorganization relief under the provisions of chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code”) and their continuation as a ~~valuation~~going ~~allowance~~concern ~~if,~~is ~~based~~contingent upon, among other things, the ~~weight~~Debtors ability (i) to comply with the terms and conditions of ~~available~~the ~~evidence~~debtors-in-possession financing arrangements; (ii) to obtain confirmation of a plan of reorganization under the Bankruptcy Code; (iii) to generate sufficient cash flow from operations to fund working capital, itcapital isexpenditures and debt service requirements, and; (iv) ~~more~~to ~~likely~~obtain ~~than~~financing sources to meet future obligations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The accompanying consolidated financial statements do not ~~that~~include ~~some~~any ~~portion~~adjustments orrelating ~~all~~to the recoverability and classification of asset carrying amounts or the ~~deferred~~amount ~~tax~~and ~~assets~~classification ~~will~~of ~~not~~liabilities bethat ~~realized~~may result from the outcome of this uncertainty.

~~The~~/s/ ~~components~~Malin, ofBergquist ~~the~~& ~~provisions for income taxes related to continuing operations in 2007~~Company, ~~2006,~~ ~~and 2005, are set forth below (dollar amounts in thousands):~~ LLP

	Years Ended December 31
	2007		2006		2005
Current:
Federal	$	—	$	—	$	(334	)
State		6		18		35
		6		18		(299	)
Deferred:
Federal		—		—		—
Income tax provision (benefit)	$	6	$	18	$	(299	)

Malin, Bergquist & Company, LLP

The income tax provisions recorded during 2007 and 2006 consisted of state income taxes. The federal income tax benefit recognized by the Company’s continuing operations in 2005 results from the recognition of an offsetting amount of federal income tax expense by the Company’s discontinued operations in 2005. See Note 13Pittsburgh, ~~“Discontinued Operations.”~~ Pennsylvania

~~Income~~April ~~taxes paid during 2007~~23, ~~2006, and 2005 totaled $0, $0, and $75,000, respectively.~~ 2009

~~The~~- ~~difference~~43 between the Company’s income tax provision (benefit) for income (loss) from continuing operations in 2007, 2006, and 2005 and the income taxes that would have been payable at the federal statutory rate for income (loss) from continuing operations is reconciled as follows (dollar amounts in thousands): -

	Years Ended December 31
	2007			2006			2005
Federal statutory income tax provision	$	(2,364	)	$	(2,495	)	$	(1,607	)
Change in valuation allowance		1,807			2,317			1,265
Expiration of operating loss carryforwards		360			163			—
Adjustment of impairment of long-lived assets		163			—			—
State income taxes, net of federal benefit		4			12			23
Other		36			21			20
Income tax provision (benefit)	$	6		$	18		$	(299	)

REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED

~~-61-~~ PUBLIC ACCOUNTING FIRM

~~Table~~The Board of ~~Contents~~Directors and Stockholders

~~NOTES~~Lexington TOPrecision ~~CONSOLIDATED~~Corporation ~~FINANCIAL~~and ~~STATEMENTS~~ Subsidiaries

~~The~~We ~~following~~have ~~table~~audited ~~sets~~the ~~forth~~consolidated ~~the~~balance ~~Company’s~~sheet ~~deferred~~of ~~tax~~Lexington ~~assets~~Precision Corporation and ~~deferred~~subsidiaries ~~tax~~as ~~liabilities at~~of December 31, 2006, ~~2007~~and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended. Our audit also included the data for 2006 ~~(dollar~~appearing ~~amounts~~on the financial statement schedule listed in ~~thousands~~the index at Item 15(a): . These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.

	December 31
	2007			2006
Deferred tax assets:
Net operating losses and tax credit carryforwards:
Federal net operating losses	$	8,843		$	9,267
State net operating losses		2,056			2,079
Federal alternative minimum taxes		864			864
Investment tax credit		100			100
Other tax credit		81			81
Total tax carryforwards		11,944			12,391
Deductible temporary differences:
Impairment of long-lived assets		12			175
Accounts receivable and inventory reserves		418			310
Tax inventory over book		103			142
Interest		2,583			590
Compensation accruals		292			321
Other accruals		333			384
Other		141			145
Total deferred tax assets		15,826			14,458
Valuation allowance		(14,752	)		(12,945	)
Net deferred tax assets		1,074			1,513
Deferred tax liabilities: Tax over book depreciation		(1,074	)		(1,513	)
Net deferred taxes	$	—		$	—

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

~~During~~In ~~2007~~our opinion, the ~~Company’s~~consolidated ~~valuation~~financial ~~allowance~~statements ~~increased~~referred byto $1above present fairly,~~807~~ in all material respects,~~000~~ the consolidated financial position of Lexington Precision Corporation and subsidiaries at December 31, 2006, ~~primarily~~and ~~due~~the toconsolidated results of their operations and their cash flows for the ~~net~~ ~~loss~~year ~~reported~~then byended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the ~~Company~~data for ~~2007~~2006 appearing on the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

AtThe ~~December 31,~~consolidated ~~2007~~financial statements for 2006 have been prepared assuming that Lexington Precision Corporation and subsidiaries would continue as a going concern. As more fully described in Notes 1 and 5, the Company ~~had~~failed ~~(1) net~~to ~~operating~~pay ~~loss~~quarterly ~~carryforwards~~interest ~~for~~payments ~~federal~~that ~~income tax~~were ~~purposes~~due ofon ~~$26~~its Senior Subordinated Notes on November 1,~~009~~ 2006 and February 1,~~000~~ 2007, ~~which~~resulting ~~expire~~ in substantially all of the ~~years~~Company’s ~~2011~~debt ~~through~~to ~~2026,~~be ~~(2) alternative~~in ~~minimum tax~~default ~~net~~as ~~operating~~of ~~loss~~December 31, ~~carryforwards~~2006. As of ~~$25~~February 28,~~681~~ 2007,~~000~~ the Company failed to comply with a fixed charge coverage ratio covenant that is contained in its secured borrowing arrangements. On April 5, ~~which~~2007, ~~can~~the beCompany ~~used~~was notified that the Company’s ability to ~~reduce~~borrow ~~future~~under ~~taxable income~~its ~~for~~revolving ~~purposes~~line of ~~calculating~~credit ~~alternative~~would ~~minimum~~be ~~taxable~~terminated ~~income,~~after ~~if any~~May 7, ~~without~~2007. ~~any~~On ~~time limitation~~April 6, ~~and~~2007, ~~(3) alternative~~the ~~minimum~~Company ~~tax~~received ~~credit~~a ~~carryforwards~~notice of ~~$864,000,~~acceleration ~~which~~demanding ~~can~~immediate bepayment ~~used~~in ~~to offset~~full ~~future~~of ~~payments~~a portion of ~~regular~~the ~~federal~~obligations ~~income~~due ~~taxes,~~under ifits ~~any~~real estate term loan. Further, ~~without~~the ~~any~~Company ~~time~~has ~~limitation~~a working capital deficiency and a stockholders’ deficit. ~~During 2007,~~These ~~$260,000~~conditions ofraise substantial doubt about the Company’s ~~net~~ability ~~operating~~to ~~loss~~continue ~~carryforwards~~as ~~were~~a ~~utilized~~going ~~and~~concern. ~~$986,000 expired~~Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~-62-~~ /s/ Ernst &Young LLP

~~Table~~Cleveland, ~~of Contents~~Ohio

~~NOTES~~April 12, ~~TO CONSOLIDATED FINANCIAL STATEMENTS~~ 2007

~~The~~- ~~expiration~~44 ~~of the Company’s federal net operating loss carryforwards by year of expiration is set forth in the table below (dollar amounts in thousands):~~ -

2008	$	—
2009		—
2010		—
2011		1,379
2012		1,371
Thereafter		23,259
Total federal net operating loss carryforwards	$	26,009

LEXINGTON PRECISION CORPORATION

~~Note~~AND ~~8 — Segments~~ SUBSIDIARY

~~Description~~Consolidated Statements of ~~Segments and Products~~ Operations

~~The~~(thousands Company has two operating segments, the Rubber Group and the Metals Group. The Rubber Group manufactures tight-tolerance rubber components, primarily, connector seals used in automotive wiring systems, insulators used in original equipment and aftermarket automotive ignition-wire sets, and molded rubber components used in a variety of ~~medical devices~~dollars, ~~such~~except asper ~~intravenous feeding~~share systems, syringes, and surgical equipment. The Metals Group manufactures machined metal components from aluminum, brass, steel, and stainless steel bars, forgings, and cold-headed blanks. The Rubber Group and the Metals Group conduct substantially all of their business in the continental United States. At December 31, 2007, 21.4% of the Rubber Group’s employees were covered by a collective bargaining agreement that expires on December 11, 2008 and, 20.3% of the Rubber Group’s employees were subject to a collective bargaining agreement that expires on October 19, 2008. data)

The Corporate Office consists primarily of general administrative expenses that are not a result of any activity carried on by either the Rubber Group or the Metals Group. Corporate Office expenses include the compensation and benefits of the Company’s executive officers and corporate staff, rent on the office space occupied by these individuals, general corporate legal fees, including fees related to financings, and certain insurance expenses. Assets of the Corporate Office are primarily cash, marketable securities, certain prepaid expenses and other miscellaneous current assets, deferred tax assets, and deferred financing expenses.

	Years Ended December 31
	2008			2007			2006
Net sales	$	73,029		$	88,408		$	87,901
Cost of sales		63,107			76,529			77,159
Gross profit		9,922			11,879			10,742
Selling and administrative expenses		6,685			7,204			6,658
Income from operations		3,237			4,675			4,084
Other expense:
Interest expense		(8,726	)		(11,339	)		(10,943	)
Reorganization items, net		(4,540	)		—			—
Loss from continuing operations before income taxes		(10,029	)		(6,664	)		(6,859	)
Income tax provision		35			6			18
Loss from continuing operations		(10,064	)		(6,670	)		(6,877	)
Loss from discontinued operations		(229	)		(289	)		(472	)
Net loss	$	(10,293	)	$	(6,959	)	$	(7,349	)
Basic and diluted loss per share of common stock:
Continuing operations	$	(2.03	)	$	(1.35	)	$	(1.39	)
Discontinued operations		(0.04	)		(0.06	)		(0.10	)
Net loss	$	(2.07	)	$	(1.41	)

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