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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

               For the transition period from ________ to ________

                          Commission file number 1-4987

                               SL INDUSTRIES, INC.
               (Exact name of Company as specified in its charter)


                                         
          NEW JERSEY                                     21-0682685
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)



                                                                   
520 FELLOWSHIP ROAD, SUITE A114, MT. LAUREL, NJ                          08054
    (Address of principal executive offices)                          (Zip Code)


          Company's telephone number, including area code: 856-727-1500

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



     TITLE OF EACH CLASS       NAME OF EACH EXCHANGE ON WHICH REGISTERED:
     -------------------       ------------------------------------------
                            
Common stock, $.20 par value   American Stock Exchange
                               Philadelphia Stock Exchange


        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

     Indicate 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 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-K.  X
           ---

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant based on the closing price of the Common Stock on the last
business day of the Registrant's most recently completed second financial
quarter, as reported by the American Stock Exchange was approximately
$46,559,000.

     The number of shares of common stock outstanding as of March 2, 2005, was
5,486,597.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain information required by Part III of this report (Items 10, 11, 12,
13 and 14) is incorporated by reference from the Company's proxy statement to be
filed pursuant to Regulation 14A with respect to the registrant's 2005 annual
meeting of stockholders.

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                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                      
PART I

Item 1    Business.......................................................     1
Item 2    Properties.....................................................    13
Item 3    Legal Proceedings..............................................    13
Item 4    Submission of Matters to a Vote of Security Holders............    16

PART II

Item 5    Market for Registrant's Common Equity,
             Related Stockholder Matters, and Issuer
             Purchases of Equity Securities..............................    16
Item 6    Selected Financial Data........................................    18
Item 7    Management's Discussion and Analysis of Financial
             Condition and Results of Operations.........................    18
Item 7A   Quantitative and Qualitative Disclosures about
             Market Risk.................................................    33
Item 8    Financial Statements and Supplementary Data....................    33
Item 9    Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure......................    33
Item 9A   Controls and Procedures........................................    33
Item 9B   Other Information..............................................    34

PART III

Item 10   Directors and Executive Officers of the Registrant.............    34
Item 11   Executive Compensation.........................................    34
Item 12   Security Ownership of Certain Beneficial Owners
             and Management and Related Stockholder Matters..............    34
Item 13   Certain Relationships and Related Transactions.................    34
Item 14   Principal Accountant Fees and Services.........................    34

PART IV

Item 15   Exhibits and Financial Statement Schedules.....................    35

SIGNATURES...............................................................    36

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE...........    F1




PART I

ITEM 1. BUSINESS

(A) GENERAL DEVELOPMENT OF BUSINESS

The Company, through its subsidiaries, designs, manufactures and markets power
electronics, power motion, power protection, teleprotection and specialized
communication equipment that is used in a variety of medical, aerospace,
computer, datacom, industrial, telecom, transportation and electric power
utility equipment applications. Its products are generally incorporated into
larger systems to increase operating safety, reliability and efficiency. The
Company's products are largely sold to Original Equipment Manufacturers
("OEMs"), the electric power utility industry, and to a lesser extent, to
commercial distributors. On March 29, 1956, the Company was incorporated as G-L
Electronics Company in the state of New Jersey. Its name was changed to G-L
Industries, Inc. in November 1963; SGL Industries, Inc. in November 1970; and
then to the present name of SL Industries, Inc. in September 1984.

On September 6, 2001, the Company sold substantially all of the assets of SL
Waber, Inc. ("SL Waber") and all the stock of SL Waber's subsidiary, Waber de
Mexico S.A. de C.V. The Company received cash of $1,053,000 at closing. In
addition, the purchaser agreed to assume certain liabilities and ongoing
obligations of SL Waber. As a result of the transaction, the Company recorded a
pre-tax loss from the sale of discontinued operations of approximately
$2,745,000. The results of operations of SL Waber are presented as discontinued
operations for all periods presented in the financial statements set forth
herein.

In December 2001, the Company surrendered for cash substantially all of its life
insurance policies with a total surrender value of $11,109,000. Additional
policies with a cash surrender value of $447,000 were surrendered in February
2002. These policies insured the lives of former and present executives and key
employees and had been maintained as an internal mechanism to fund the Company's
obligations under its capital accumulation plan and deferred compensation plan.
Aggregate liabilities under those plans, which are owed to former and current
executives and key employees, amount to $4,154,000 as of December 31, 2004.
Proceeds from the life insurance policies were received in December 2001,
January 2002 and March 2002 and were used to pay down bank debt. Beneficiaries
under the capital accumulation plan and deferred compensation plan remain
general unsecured creditors of the Company.

In December 2001, the Company sold back to the purchaser of a former subsidiary
a mortgage note in the outstanding principal amount of $2,200,000. The mortgage
note secured the real property of the former subsidiary. In January 2002, the
Company received cash proceeds of $1,600,000 from the sale of the mortgage note,
all of which were used to pay down bank debt.

On January 22, 2002, the Company held its annual meeting of shareholders for the
2001 calendar year. At that annual meeting, all eight members of the Board of
Directors stood for election. In addition, five nominees from a committee
comprised of representatives of two institutional shareholders (the "RORID
Committee"), stood for election to the Board of Directors. Upon the
certification of the election results on January 24, 2002, the five nominees of
the RORID Committee were elected (James Henderson, Glen Kassan, Warren
Lichtenstein, Mark Schwarz and Steven Wolosky), and three incumbent directors
were


                                     Page 1



reelected (J. Dwane Baumgardner, Charles T. Hopkins and J. Edward Odegaard).
Shortly after the annual meeting, Messrs. Hopkins and Odegaard resigned from the
Board of Directors. Upon the election of the five RORID Committee nominees, each
of the executive officers of the Company, Owen Farren, David Nuzzo, and Jacob
Cherian, was entitled to payment under his respective change-in-control
agreement. As a result, in January 2002, the Company paid Messrs. Farren, Nuzzo,
and Cherian, respectively, $877,565, $352,556, and $250,000 under such
agreements.

At the initial meeting of the new Board of Directors on January 24, 2002, Warren
Lichtenstein was elected Chairman of the Board. On February 4, 2002, Warren
Lichtenstein was elected Chief Executive Officer and Glen Kassan was elected
President of the Company. Additionally, David Nuzzo was reelected Vice
President-Finance and Administration, Treasurer and Secretary. Owen Farren was
terminated as Chairman, Chief Executive Officer and President effective February
4, 2002. All senior management teams are continuing in their positions, other
than Jacob Cherian, who resigned, as Controller of the Company, effective April
26, 2002.

On March 8, 2002, Richard Smith was elected to the Board of Directors, filling
one of the two vacant directorships. On June 6, 2002, Avrum Gray was elected to
the Board of Directors to fill the last vacancy. In May 2003, Richard Smith
resigned from the Board of Directors. On May 29, 2003, James Risher was elected
to the Board of Directors to fill the vacancy created by the resignation of Mr.
Smith.

At the Company's Annual Meeting of Shareholders held on June 9, 2004, Steven
Wolosky did not stand for reelection. The Company currently has seven members on
its Board of Directors.

On January 6, 2003, the Company sold all of the issued and outstanding shares of
capital stock of its indirect subsidiary, Elektro-Metall Export GmbH ("EME"),
for a purchase price of $8,000,000, which consisted of cash and purchaser notes.
In addition, a distribution of $2,000,000 was paid prior to closing by EME to a
subsidiary of the Company and the purchaser did not require that the Company pay
down EME's bank debt of approximately $3,600,000 prior to closing. The purchaser
notes were a $3,000,000 secured note that bore interest at the prime rate plus
2%, which was paid on March 14, 2003, and a $1,000,000 unsecured note that bore
interest at an annual rate of 12%, which was paid on April 2, 2004. Cash
proceeds of $4,000,000 received at closing plus the $2,000,000 distribution and
the $3,000,000 secured note paid March 14, 2003 were used to pay down bank debt.
All cash proceeds related to the sale of EME have been received. As a result of
the transaction, the Company recorded a pre-tax loss from the sale of
discontinued operations of approximately $1,619,000 in 2002. The tax effects
were not material to the transaction.

On January 6, 2003, the Company entered into a three-year senior secured credit
facility with LaSalle Business Credit LLC. The credit facility provides for a
maximum indebtedness of $20,000,000, with a revolving tranche and a term debt
tranche. Outstanding indebtedness under this facility bears interest ranging
from the prime rate plus .5% to the prime rate plus 2%. The credit facility is
secured by all of the Company's assets and requires that the Company maintain
specified financial ratios. Loan proceeds at closing were used to retire the
Company's former bank debt, which matured on December 31, 2002, and for working
capital purposes.

On April 30, 2003, the Company de-listed its shares on the New York Stock
Exchange ("NYSE"), and


                                     Page 2



listed its shares for trading on the American Stock Exchange ("AMEX"). The
Company's common stock began trading on the AMEX under the symbol "SLI."
Additionally, on April 30, 2003, the Company's symbol on the Philadelphia Stock
Exchange was changed from "SL" to "SLI." The Company had received notification
from the NYSE that it was below the market capitalization and stockholders'
equity requirements of the NYSE's listing standards. After it was unable to make
sufficient progress towards meeting the listing standards, management made a
determination to transfer the Company's listing to the AMEX.

On November 24, 2003, the Company sold substantially all of the assets of its
subsidiary, SL Surface Technologies, Inc. ("SurfTech"). The Company received
cash of $600,000 at closing. In addition, the purchaser assumed certain
liabilities and ongoing obligations of SurfTech. As a result of the transaction,
the Company recorded an after tax loss from the sale of discontinued operations
of approximately $442,000. The results of operations of SurfTech are presented
as discontinued operations for all periods presented in the financial
statements.

(B) FINANCIAL INFORMATION ABOUT SEGMENTS

Financial information about the Company's business segments is incorporated
herein by reference to Note 15 in the Notes to Consolidated Financial Statements
included in Part IV of this Annual Report on Form 10-K.

(C) NARRATIVE DESCRIPTION OF BUSINESS

SEGMENTS

The Company currently operates under four business segments: Condor DC Power
Supplies, Inc. ("Condor"), Teal Electronics Corp. ("Teal"), SL Montevideo
Technology, Inc. ("SL-MTI"), and RFL Electronics Inc. ("RFL"). In the second
quarter of 2003, management decided to combine Condor and Teal into one business
unit classified as the Power Electronics Group. Accordingly, for the years ended
December 31, 2004, 2003 and 2002 the Company's reportable segments consisted of
Condor, Teal (collectively, The Power Electronics Group), SL-MTI and RFL.

CONDOR - Condor produces a wide range of standard and custom power supply
products that convert AC or DC power to direct electrical current to be used in
customers' end products. Standard and custom AC-DC and DC-DC power supplies in
both linear and switching configurations are produced, with ranges in power from
1 to 5000 watts, and are manufactured in either commercial or medical
configurations. Power supplies closely regulate and monitor power outputs, using
patented filter and other technologies, resulting in little or no electrical
interference. Power supplies are also used in drive systems for electric
equipment and other motion control systems. For the years ended December 31,
2004, December 31, 2003 and December 31, 2002, net sales of Condor, as a
percentage of consolidated net sales from continuing operations, were 35%, 38%
and 36%, respectively.

TEAL - Teal designs and manufactures customized power conditioning and power
distribution units. Products are developed and manufactured for custom
electrical subsystems for OEMs of semiconductor, medical imaging, graphics and
telecommunication systems. Outsourcing the AC power system helps OEMs reduce
cost and time to market while increasing system performance and customer
satisfaction.


                                     Page 3



Customers are also helped by getting necessary agency approvals. Custom products
are often called "Power Conditioning and Distribution Units," which provide
voltage conversion and stabilization, system control, and power distribution for
systems such as CT and MRI scanners, chip testers and industrial systems. For
the years ended December 31, 2004, December 31, 2003 and December 31, 2002, net
sales of Teal, as a percentage of consolidated net sales from continuing
operations, were 25%, 19% and 18%, respectively.

SL-MTI - SL-MTI is a technological leader in the design and manufacture of
intelligent, high power density precision motors. Important programs in both
traditional and new market areas have been won as a result of new motor and
(patented and patent pending) motor control technologies. New motor and motion
controls are used in numerous applications, including aerospace, medical and
industrial products. Negotiations are continuing with customers on advanced
designs for numerous programs, including fuel cell energy storage systems, high
performance missile guidance motors, and medical/surgical drills and saws. For
the years ended December 31, 2004, December 31, 2003 and December 31, 2002, net
sales of SL-MTI, as a percentage of consolidated net sales from continuing
operations, were 21% for each period.

RFL - RFL designs and manufactures teleprotection products/systems that are used
to protect electric utility transmission lines and apparatus by isolating faulty
transmission lines from a transmission grid. These products are sophisticated
communication systems that allow electric utilities to manage their high-voltage
power lines more efficiently and include a system that is a completely digital,
fully-integrated relay/communications terminal, suitable for high-speed
protective relaying of overhead or underground high-voltage transmission lines.
RFL provides customer service and maintenance for all electric utility equipment
protection systems. For the years ended December 31, 2004, December 31, 2003 and
December 31, 2002, net sales of RFL, as a percentage of consolidated net sales
from continuing operations, were 19%, 22% and 25%, respectively.

THE COMPANY'S DISCONTINUED OPERATIONS CONSIST OF:

SURFTECH - SurfTech produced industrial coatings and platings for equipment in
the corrugated paper and telecommunications industries. On November 24, 2003,
the Company sold substantially all of the assets of SurfTech. As a result,
SurfTech is reported as a discontinued operation for all periods presented. For
the years ended December 31, 2003 and December 31, 2002, net sales of SurfTech
were $1,840,000 and $2,237,000, respectively.

EME - EME is based in Ingolstadt, Germany with low cost manufacturing operations
in Paks, Hungary. It is a manufacturer of electromechanical actuation systems,
power drive units and complex wire harness systems for use in the aerospace and
automobile industries. On January 6, 2003, the Company sold all of the issued
and outstanding shares of capital stock of EME. As a result, EME is reported as
a discontinued operation for all periods presented. For the year ended December
31, 2002, net sales of EME were $27,658,000.

SL WABER - SL Waber manufactures surge suppressors that protect computers,
audiovisual and other electronic equipment from sudden surges in power. These
products are sold to OEM customers as well as to distributors and dealers of
electronics and electrical supplies and retailers and wholesalers of office,


                                     Page 4


computer, and consumer products. In September 2001, the Company sold
substantially all of the assets of SL Waber, including its name and goodwill, as
a going concern. As a result, SL Waber is reported as a discontinued operation
for all periods presented.

RAW MATERIALS

Raw material components are supplied by various domestic and international
vendors. In general, availability of materials is not a problem for the Company.
However, in the fourth quarter of 2000, the Company experienced shortages in the
supply of certain strategic components for power supplies. During 2004, there
were no major disruptions in the supply of raw materials.

Raw materials are purchased directly from the manufacturer whenever possible to
avoid distributor mark-ups. Average lead times generally run from immediate
availability to eight weeks. Lead times can be substantially higher for
strategic components subject to industry shortages. In most cases, viable
multiple sources are maintained for flexibility and competitive leverage.

PATENTS, TRADEMARKS, LICENSES, FRANCHISES, AND CONCESSIONS

The Company has proprietary information that it has developed and uses in its
business. This proprietary information is protected by contractual agreements as
well as through patents and patents pending, to the extent appropriate. The
patents are protected by federal law. To protect its proprietary information,
the Company also enters into non-disclosure agreements with its employees,
vendors and customers. Where appropriate, the Company will take and has taken
all steps necessary to defend its intellectual property.

SEASONALITY

Generally, seasonality is not a significant factor in any of the Company's
segments.

SIGNIFICANT CUSTOMERS

The Company has no customer that accounts for 10% or more of its consolidated
net sales from continuing operations. Each of Condor, Teal, SL-MTI and RFL has
certain major customers, the loss of any of which could have a material adverse
effect on such entity.

BACKLOG

Backlog at March 6, 2005, February 29, 2004, and February 28, 2003 was
$41,607,000, $42,022,000, and $41,544,000, respectively. The backlog remained
relatively unchanged at March 6, 2005 as compared to February 29, 2004. In 2004
the Company experienced an increase in orders from OEMs in the
telecommunications, semiconductor and medical imaging industries, offset in part
by a decrease in orders from electric power utility customers.

COMPETITIVE CONDITIONS

The Company's businesses are in active competition with domestic and foreign
companies with national and international name recognition that offer similar
products or services and with companies producing alternative products
appropriate for the same uses. In addition, Condor has experienced significant
offshore competition for certain products in certain markets. The uncertain
commercial aerospace market has also created more competitive conditions in that
industry. Each of the Company's businesses differentiate themselves from their
competition by concentrating on customized products based on customer needs. The
Company's businesses seek a competitive advantage based on quality, service,


                                     Page 5



innovation, delivery and price.

ENVIRONMENTAL

The Company (together with the industries in which it operates or has operated)
is subject to United States and Mexican environmental laws and regulations
concerning emissions to the air, discharges to surface and subsurface waters and
generation, handling, storage, transportation, treatment and disposal of waste
materials. The Company and the industry are also subject to other federal, state
and local environmental laws and regulations, including those that require the
Company to remediate or mitigate the effects of the disposal or release of
certain chemical substances at various sites, including some where it has ceased
operations. It is impossible to predict precisely what effect these laws and
regulations will have on the Company in the future.

It is the Company's policy to comply with all environmental, health and safety
regulations, as well as industry standards for maintenance. The Company's
domestic competitors are subject to the same environmental, health and safety
laws and regulations and the Company believes that the compliance issues and
potential expenditures of its operating subsidiaries are comparable to those
faced by their major domestic competitors.

There are two sites on which the Company may incur material environmental costs
in the future as a result of past activities of its former SurfTech subsidiary.
These sites are the Company's properties located in Pennsauken, New Jersey, and
in Camden, New Jersey. With respect to the Pennsauken site, the Company is one
of several defendants in two separate lawsuits, in which it is alleged to be
responsible for groundwater contamination. The Company believes it has
significant defenses against all or any part of the claims in each of these
lawsuits and that any material adverse impact is unlikely. Regarding the Camden
site, the Company is still in the early stages of evaluating the nature and
extent of any contamination, but based on the information so far, the Company
believes that the cost to remediate the property should not exceed approximately
$560,000. The Company recorded a provision of $500,000 for this site during the
first quarter of 2002. Anticipated environmental costs have been reclassified in
discontinued operations as a result of the sale of SurfTech on November 24,
2003. For additional information related to environmental issues, see "Item 3.
Legal Proceedings," and Note 12 to the Notes to Consolidated Financial
Statements included in Part IV of this Annual Report on Form 10-K.

The Company has reported a soil and ground water contamination on SL-MTI's
property in Montevideo, Minnesota. SL-MTI has conducted analysis of the
contamination and performed remediation at the site. Further remediation efforts
will be required and the Company is engaged in discussions with the Minnesota
Pollution Control Agency to develop a remediation plan. Based on the current
information, the Company believes it will incur remediation costs at this site
of approximately $268,000, which was accrued during 2004.


                                     Page 6



EMPLOYEES

As of December 31, 2004, the Company had approximately 1,406 employees. Of these
employees, 158 were subject to collective bargaining agreements.

FOREIGN OPERATIONS

In addition to manufacturing operations in California, Minnesota, and New
Jersey, the Company manufactures substantial quantities of products in premises
leased in Mexicali, Mexico and Matamoros, Mexico. The Company has outsourced
some of its products with contract manufacturers located in Shanghai and
Dongguan, China. These external and foreign sources of supply present risks of
interruption for reasons beyond the Company's control, including political or
economic instability and other uncertainties.

Generally, the Company's sales are priced in United States dollars and its costs
and expenses are priced in United States dollars and Mexican pesos. Accordingly,
the competitiveness of the Company's products relative to locally produced
products may be affected by the performance of the United States dollar compared
with that of its foreign customers' and competitors' currencies. Foreign net
sales comprised 13%, 12% and 13% of net sales from continuing operations for the
years ended December 31, 2004, December 31, 2003 and December 31, 2002,
respectively.

Additionally, the Company is exposed to foreign currency exchange rate
fluctuations, which might result from adverse fluctuations in the value of the
Mexican peso. At December 31, 2004 and December 31, 2003, the Company had net
liabilities of $286,000 and $233,000, respectively, subject to fluctuations in
the value of the Mexican peso. Fluctuations in the value of the foreign
currencies were not significant in 2004. There can be no assurance that the
value of the Mexican peso will continue to remain stable.

Condor manufactures substantially all of its products in Mexico and incurs its
labor costs and supplies in Mexican pesos. Teal has moved a limited amount of
its manufacturing to Condor's facility in Mexico. SL-MTI manufactures
approximately 60% of its products in Mexico and incurs related labor costs and
supplies in Mexican pesos. Condor, Teal and SL-MTI price their sales in United
States dollars. The Mexican subsidiaries of Condor and SL-MTI maintain their
books and records in Mexican pesos. For additional information related to
financial information about foreign operations, see Notes 15 and 16 in the Notes
to Consolidated Financial Statements included in Part IV of this Annual Report
on Form 10-K.

ADDITIONAL INFORMATION

Additional information regarding the development of the Company's businesses
during 2004 and 2003 is contained in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Part II
and Notes 1 and 2 of the Notes to the Consolidated Financial Statements included
in Part IV of this Annual Report on Form 10-K.

RISK FACTORS

THE COMPANY MAY BE ADVERSELY IMPACTED BY FLUCTUATIONS IN CASH FLOWS, LIQUIDITY,
AND DEBT LEVELS.

Working capital requirements and cash flows historically have been, and are
expected to continue to be,


                                     Page 7



subject to quarterly and yearly fluctuations, depending on such factors as
levels of sales, timing and size of capital expenditures, timing of deliveries
and collection of receivables, inventory levels, customer payment terms,
customer financing obligations, and supplier terms and conditions. The inability
to manage adverse cash flow fluctuations resulting from such factors could have
a material adverse effect on the Company's business, results of operations, and
financial condition. In order to finance the working capital requirements of the
Company's business, the Company has entered into a three-year Senior Secured
Credit Facility with LaSalle Business Credit LLC and has borrowed funds
thereunder. At December 31, 2004, outstanding borrowed funds under the credit
facility were $2,015,000, with total availability thereunder of $12,273,000. In
addition, at December 31, 2004 the Company maintained a cash balance of
$2,659,000. The Company is in discussions with several commercial banks to
refinance the Senior Credit Facility on or before its expiration date which is
January 6, 2006. If operating cash flows are not sufficient to meet operating
expenses, capital expenditures and debt service requirements as they become due,
the Company may be required, in order to meet its debt service obligations, to
delay or reduce capital expenditures or the introduction of new products, to
sell assets, and/or to forego business opportunities, including research and
development projects, product design enhancements and/or acquisitions.

THE COMPANY'S OPERATING RESULTS MAY FLUCTUATE, AND THERE MAY BE VOLATILITY IN
GENERAL INDUSTRY, ECONOMIC, AND MARKET CONDITIONS.

The results of operations for any quarter or year are not necessarily indicative
of results to be expected in future periods. Future operating results may be
affected by various trends and factors that must be managed in order to achieve
favorable operating results. The inability to accurately forecast and manage
these trends and factors could have a material adverse effect on the Company's
business, results of operations, and financial condition.

General economic conditions, and specifically market conditions in the medical,
telecommunications, semiconductor and electric power utility equipment
industries in the United States and globally, affect the Company's business. In
addition, reduced capital spending and/or negative economic conditions in the
United States, Europe, Asia, Latin America and/or other areas of the world could
have a material adverse effect on the Company's business, results of operations,
and financial condition.

Gross margins may be adversely affected by increased price competition, excess
capacity, higher material or labor costs, warranty costs, obsolescence charges,
loss of cost savings on future inventory purchases as a result of high inventory
levels, introductions of new products, increased levels of customer services,
changes in distribution channels, and changes in product and geographic mix.
Lower than expected gross margins could have a material adverse effect on the
Company's business, results of operations, and financial condition.

THE COMPANY'S OPERATING RESULTS AND STOCK PRICE MAY BE ADVERSELY AFFECTED BY
FLUCTUATIONS IN CUSTOMERS' BUSINESSES.

Business is dependent upon product sales to telecommunications, semiconductor,
medical imaging, aerospace and other businesses, who in turn are dependent for
their business upon orders from their customers. Any downturn in the business of
any of these parties affects the Company. Moreover, sales often reflect orders
shipped in the same quarter in which they are received, which makes sales
vulnerable to short-term fluctuations in customer demand and difficult to
predict. In general, customer


                                     Page 8



orders may be cancelled, modified or rescheduled after receipt. Consequently,
the timing of these orders and any subsequent cancellation, modification or
rescheduling of these orders has affected, and will in the future affect,
results of operations from quarter to quarter. Also, as some of the Company's
customers typically order in large quantities, any subsequent cancellation,
modification or rescheduling of an individual large order may affect results of
operations.

FAILURE TO REMAIN COMPETITIVE COULD ADVERSELY IMPACT THE COMPANY'S OPERATING
RESULTS.

The markets in which the Company sells its products are highly competitive and
characterized by rapidly changing and converging technologies. The Company faces
intense competition from established competitors and the threat of future
competition from new and emerging companies in all aspects of business. The
Company's future success will depend on its ability to enhance current products
and to develop new products that keep pace with technological developments and
respond to changes in customer requirements. Among its current competitors are
its customers, who are vertically integrated and either manufacture and/or are
capable of manufacturing some or all of the Company's products sold to them. In
addition to current competitors, new competitors providing niche, and
potentially broad, product solutions will likely increase in the future. To
remain competitive in both the current and future business climates, the Company
must maintain a substantial commitment to focused research and development,
improve the efficiency of its manufacturing operations, and streamline its
marketing and sales efforts and attendant customer service and support. Among
other things, the Company may not be able to anticipate shifts in its markets or
technologies, may not have sufficient resources to continue to make the
investments necessary to remain competitive, or may not make the technological
advances necessary to remain competitive. In addition, notwithstanding its
efforts, technological changes, manufacturing efficiencies or development
efforts by competitors may render the Company's products or technologies
obsolete or uncompetitive.

CONSOLIDATION IN THE INDUSTRY COULD INCREASE COMPETITIVE PRESSURES ON THE
COMPANY.

The industries in which the Company operates are consolidating and will continue
to consolidate in the future as companies attempt to strengthen or hold their
market positions. Such consolidations may result in stronger competitors that
are better able to compete as sole-source vendors for customers. The Company's
relatively small size may increase competitive pressure for customers seeking
single vendor solutions. Such increased competition would increase the
variability of the Company's operating results and could otherwise have a
material adverse effect on the Company's business, results of operations, and
financial condition.

THE COMPANY IS DEPENDENT UPON THIRD PARTIES FOR PARTS AND COMPONENTS.

The ability to meet customer demand depends, in part, on the ability of the
Company to obtain timely and adequate delivery of parts and components from
suppliers and internal manufacturing capacity. The Company has experienced
significant shortages in the past, and although it works closely with its
suppliers to avoid shortages, there can be no assurance that it will not
encounter further shortages in the future. A further reduction or interruption
in component supplies or a significant increase in the price of one or more
components could have a material adverse effect on the Company's business,
results of operations and financial condition.

THE COMPANY MAY BE SUBJECT TO SIGNIFICANT COSTS IN COMPLYING WITH ENVIRONMENTAL
LAWS.

The Company's facilities are subject to a broad array of environmental laws and
regulations. The costs


                                     Page 9



of complying with complex environmental laws and regulations may be significant
in the future. Present accruals for such costs and liabilities may not be
adequate in the future since the estimates on which the accruals are based
depend on a number of factors, including the nature of the problem, the
complexity of the site, the nature of the remedy, the outcome of discussions
with regulatory agencies and other potentially responsible parties ("PRPs") at
multiparty sites, and the number and financial viability of other PRPs.

Further, the Company is the subject of various lawsuits and actions relating to
environmental issues, including an administrative action in connection with
SurfTech's Pennsauken facility which could subject the Company to, among other
things, $9,266,000 in collective reimbursements (with other parties) to NJDEP
(as defined herein). In addition, a class action suit was filed on June 12, 2002
against the Company, SurfTech and 37 other defendants alleging that the
plaintiffs suffered personal injuries as a result of consuming contaminated
water distributed from the Puchack Wellfield in Pennsauken, New Jersey (which
supplies Camden, New Jersey). There can be no assurance that the Company will be
able to successfully defend itself against or settle these or any other actions
to which it is a party. For additional information related to environmental
risks, see "Item 3. Legal Proceedings," and Note 12 to the Notes to Consolidated
Financial Statements included in Part IV of this Annual Report on Form 10-K.

THE COMPANY MAY HAVE TO PAY SIGNIFICANT COSTS FOR REGULATORY COMPLIANCE AND
LITIGATION.

Rapid or unforeseen escalation of the cost of regulatory compliance and/or
litigation, including but not limited to, environmental compliance,
product-related liability, assertions related to intellectual property rights
and licenses, adoption of new accounting policies, or changes in current
accounting policies and practices and the application of such policies and
practices could have a material adverse effect on the Company's business.
Additionally, the Company is subject to certain legal actions involving
complaints by terminated employees and disputes with customers and suppliers.
One such claim was brought against the Company's subsidiary, SL-MTI, by a
customer seeking $3,900,000 in compensatory damages. On November 7, 2002, after
a full trial of the facts, a jury awarded this customer damages of $650,000,
which, when combined with pre-trial interest, amounts to a total claim of
$780,000. The customer has appealed various aspects of this decision, which
appeal, if determined adversely to the Company, could have a material adverse
impact upon the Company. In the future there can be no assurance of the outcome
in any litigation. An adverse determination in any one or more significant legal
actions could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Item 3. Legal Proceedings," and Note
12 to the Notes to the Consolidated Financial Statements included in Part IV of
this Annual Report on Form 10-K.

THE COMPANY IS DEPENDENT UPON KEY PERSONNEL FOR THE MANAGEMENT OF ITS
OPERATIONS.

The Company's success depends in part upon the continued services of many of its
highly skilled personnel involved in management, engineering and sales, and upon
its ability to attract and retain additional highly qualified officers and
employees. The loss of service of any of these key personnel could have a
material adverse effect on business. In addition, future success will depend on
the ability of officers and key employees to manage operations successfully.

THE COMPANY'S OPERATING RESULTS AND COMMON STOCK ARE SUBJECT TO PRICE
FLUCTUATIONS.

Operating results for future periods are never perfectly predictable even in the
most certain of economic


                                     Page 10



times, and the Company expects to continue to experience fluctuations in its
quarterly results. These fluctuations, which in the future may be significant,
could cause substantial variability in the market price of the Company's stock.
The market price for the Company's common stock has been, and is likely to
continue to be, highly volatile. The market for the Company's common stock is
subject to fluctuations as a result of a variety of factors, including factors
beyond its control. These include:

     -    additions or departures of key personnel;

     -    changes in market valuations of similar companies;

     -    announcements of new products or services by competitors or new
          competing technologies;

     -    conditions or trends in medical equipment, medical imaging, aerospace,
          and electric utility industries;

     -    general market and economic conditions; and

     -    other events or factors that are unforeseen.

OTHER FACTORS MAY AFFECT FUTURE RESULTS.

The risks and uncertainties described herein are not the only ones facing the
Company. Additional risks and uncertainties not presently known, or that may now
be deemed immaterial, may also impair business operations.

(D) FORWARD-LOOKING INFORMATION

From time to time, information provided by the Company, including written or
oral statements made by representatives, may contain forward-looking information
as defined in the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, contain forward-looking
information, particularly statements which address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, such as expansion and growth of the Company's business, future capital
expenditures and the Company's prospects and strategy. In reviewing such
information, it should be kept in mind that actual results may differ materially
from those projected or suggested in such forward-looking information. This
forward-looking information is based on various factors and was derived
utilizing numerous assumptions. Many of these factors previously have been
identified in filings or statements made by or on behalf of the Company.

Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include changes in the general economy, changes in capital
investment and/or consumer spending, competitive factors and other factors
affecting the Company's business in or beyond the Company's control. These
factors include a change in the rate of inflation, a change in state or federal
legislation or regulations, an adverse determination with respect to a claim in
litigation or other claims (including environmental matters), the ability to
recruit and develop employees, the ability to successfully implement new
technology and the stability of product costs. These factors also include the
timing and degree of any business recovery in certain of the Company's markets
that are currently experiencing a cyclical economic downturn.

Other factors and assumptions not identified above could also cause actual
results to differ materially from those set forth in the forward-looking
information. The Company does not undertake to update forward-looking
information contained herein or elsewhere to reflect actual results, changes in


                                     Page 11



assumptions or changes in other factors affecting such forward-looking
information.

Future factors include the effectiveness of cost reduction actions undertaken by
the Company; the timing and degree of any business recovery in certain of the
Company's markets that are currently experiencing economic uncertainty;
increasing prices, products and services offered by U.S. and non-U.S.
competitors, including new entrants; rapid technological developments and
changes and the Company's ability to continue to introduce and develop
competitive new products and services on a timely, cost-effective basis;
availability of manufacturing capacity, components and materials; credit
concerns and the potential for deterioration of the credit quality of customers;
customer demand for the Company's products and services; U.S. and non-U.S.
governmental and public policy changes that may affect the level of new
investments and purchases made by customers; changes in environmental and other
U.S. and non-U.S. governmental regulations; protection and validity of patent
and other intellectual property rights; compliance with the covenants and
restrictions of bank credit facilities; and outcome of pending and future
litigation and governmental proceedings. These are representative of the future
factors that could affect the outcome of the forward-looking statements. In
addition, such statements could be affected by general industry and market
conditions and growth rates, general U.S. and non-U.S. economic conditions,
including increased economic uncertainty and instability following the terrorist
attacks in the United States on September 11, 2001 and the ongoing hostilities
in Iraq, the global economic slowdown and interest rate and currency exchange
rate fluctuations and other future factors.


                                     Page 12



ITEM 2. PROPERTIES

Set forth below are the properties where the Company conducted business as of
December 31, 2004.



                                                                           Approx.
                                                                            Square   Owned or Leased And
    Location                         General Character                     Footage     Expiration Date
    --------                         -----------------                     -------   -------------------
                                                                            
Oxnard, CA          Manufacture and distribution of power supply            36,500    Leased - 09/30/05
                    products (Condor)

Mexicali, Mexico    Manufacture and distribution of power supply            62,500    Leased - 04/30/06
                    products (Condor)                                       14,500    Leased - 04/30/06

San Diego, CA       Manufacture of power distribution and conditioning      45,054    Leased - 03/22/07
                    units (Teal)

Montevideo, MN      Manufacture of precision motors and motion control      30,000    Owned
                    systems (SL-MTI)

Matamoros, Mexico   Manufacture of precision motors (SL-MTI)                15,200    Leased - 11/05/05

Boonton Twp., NJ    Manufacture of electric utility equipment protection    78,000    Owned
                    systems (RFL)

Camden, NJ          Industrial surface finishing (Other) (1)                15,800    Owned

Pennsauken, NJ      Industrial surface finishing warehouse (Other) (1)       6,000    Owned

Mt. Laurel, NJ      Corporate office (Other)                                 4,200    Leased - 11/30/05


(1)  Ownership retained by the Company after the sale of SurfTech on November
     24, 2003.

All manufacturing facilities are adequate for current production requirements.
The Company believes that its facilities are sufficient for future operations,
maintained in good operating condition and adequately insured. Of the owned
properties, none are subject to a major encumbrance material to the operations
of the Company.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of its business, the Company is subject to loss
contingencies pursuant to foreign and federal, state and local governmental laws
and regulations and is also party to certain legal actions,


                                     Page 13



frequently involving complaints by terminated employees and disputes with
customers and suppliers. In the opinion of management, such claims are not
expected to have a material adverse effect on the financial condition or results
of operations of the Company.

In a November 1991 Administrative Directive, the New Jersey Department of
Environmental Protection ("NJDEP") alleged that SurfTech, formerly SL Modern
Hard Chrome, Inc., and 20 other respondents are responsible for a contamination
plume which has affected the Puchack Wellfield in Pennsauken, New Jersey (which
supplies Camden, New Jersey). SurfTech is alleged to have contributed to the
groundwater contamination through its operations conducted in Pennsauken, New
Jersey (the "SurfTech site"). Three other actions have been initiated from the
underlying directive. The first is Supplemental Directive No. 1 ("Directive No.
1") issued by the NJDEP to the same parties in May 1992, which seeks a cost
reimbursement of $8,655,000 for the construction of a treatment system at the
Puchack site and an annual payment of $611,000 (a total of $9,266,000) for
ongoing operation and maintenance of the treatment system. The second matter is
a lawsuit initiated by one of the parties named in Directive No. 1 seeking to
have the remainder of those parties, and more than 600 others, pay some or all
of that party's cost of compliance with Directive No. 1 and any other costs
associated with its site. This second matter is a claim for indemnification of
potential damages. Accordingly, it is unspecified in amount. The third matter is
a Spill Act Directive by the NJDEP to SurfTech alone, regarding similar matters
at its site and consists of a claim for contribution towards potential damages
and is unspecified in amount. Both the second and third matters relate to the
payment of a portion of the damages set forth in the discussion of Directive No.
1. The state has not initiated enforcement action regarding any of its three
Directives. There also exists an outstanding enforcement issue regarding the
Company's compliance with state environmental laws at the same site.

With regard to the $9,266,000 amount discussed in the preceding paragraph, in
the Company's view, it is not appropriate to consider that amount as "potential
cost reimbursements." The SurfTech site has undergone remedial activities under
NJDEP's supervision since 1983. The Company believes that it has a significant
defense against all or any part of the $9,266,000 claim since technical data
generated as part of previous remedial activities indicate that there is no
offsite migration of contaminants at the SurfTech site. Based on this and other
technical factors, the Company has been advised by its outside technical
consultant, with the concurrence of its outside counsel, that it has a
significant defense to Directive No. 1 and any material exposure is unlikely.

On June 12, 2002, the Company and SurfTech were served with notice of a class
action complaint filed in Superior Court of New Jersey for Camden County. The
Company and SurfTech are currently two of approximately 39 defendants in this
action. The complaint alleges, among other things, that plaintiffs suffered
personal injuries as a result of consuming water distributed from the Puchack
Wellfield in Pennsauken, New Jersey (which supplies Camden, New Jersey).

This case arises from the same factual circumstances as the current
administrative actions involving the Puchack Wellfield, which are described
above. The administrative actions and the class action lawsuit both allege that
SurfTech and other defendants contaminated ground water through the disposal of
hazardous substances at industrial facilities in the area. As with the
administrative actions, the Company believes it has significant defenses against
the class action plaintiffs' claims and intends to pursue them vigorously.
Technical data generated as part of remedial activities at the SurfTech site
have not


                                     Page 14



established offsite migration of contaminants. Based on this and other technical
factors, the Company has been advised by its outside counsel that it has a
strong defense against the claims alleged in the class action plaintiffs'
complaint, as well as the environmental administrative actions discussed above.

The Company's subsidiary, SL-MTI, defended a cause of action, brought against it
in the fall of 2000 in the Federal District Court for the Western District of
Michigan. The lawsuit was filed by Eaton Aerospace LLC ("Eaton"), alleging
breach of contract and warranty in the defective design and manufacture of a
high precision motor and demanding compensatory damages of approximately
$3,900,000. On November 7, 2002, after a full trial of the facts, a jury awarded
Eaton damages of $650,000, which when combined with pre-trial interest amounts
to a total claim of $780,000, which has been accrued. Eaton has appealed this
judgment.

The Company filed claims with several of its insurers seeking reimbursement for
past and future environmental costs. In settlement of its claims, the Company
received aggregate cash payments of $2,800,000 prior to fiscal 2001, and
commitments from three insurers to pay for a portion of environmental costs
associated with the SurfTech site of 15% of costs up to $300,000, 15% of costs
up to $150,000 and 20% of costs up to $400,000, respectively. During 2004, the
Company billed these three insurers a total of $654,000 for their contingent
commitments through 2004. These billings are recorded in discontinued
operations.

Loss contingencies include potential obligations to investigate and eliminate or
mitigate the effects on the environment of the disposal or release of certain
chemical substances at various sites, such as Superfund sites and other
facilities, whether or not they are currently in operation. The Company is
currently participating in environmental assessments and cleanups at six sites
under these laws and may in the future be involved in additional environmental
assessments and cleanups. Based upon investigations completed by the Company and
its independent engineering consulting firms to date, management has provided an
estimated accrual for all known costs believed to be probable in the amount of
$1,275,000. Of this amount, the Company expects to spend approximately $286,000
related to environmental matters in 2005. However, it is in the nature of
environmental contingencies that other circumstances might arise, the costs of
which are indeterminable at this time due to such factors as changing government
regulations and stricter standards, the unknown magnitude of defense and cleanup
costs, the unknown timing and extent of the remedial actions that may be
required, the determination of the Company's liability in proportion to other
responsible parties, and the extent, if any, to which such costs are recoverable
from other parties or from insurance. Although these contingencies could result
in additional expenses or judgments, or off-sets thereto, at present such
expenses or judgments are not expected to have a material effect on the
consolidated financial position or results of operations of the Company.

It is management's opinion that the impact of legal actions brought against the
Company and its operations will not have a material adverse effect on its
financial position or results of operations. However, the ultimate outcome of
these matters, as with litigation generally, is inherently uncertain, and it is
possible that some of these matters may be resolved adversely to the Company.
The adverse resolution of any one or more of these matters could have a material
adverse effect on the business, operating results, financial condition or cash
flows of the Company. Additional information pertaining to legal proceedings is
found in Note 12 in the Notes to the Consolidated Financial Statements included


                                     Page 15



in Part IV of this Annual Report on Form 10-K.

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

During the fourth quarter of fiscal 2004, no matter was submitted to a vote of
the Company's security holders.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OR EQUITY SECURITIES

The Company's common stock is currently registered on both the AMEX and the
Philadelphia Stock Exchange under the symbol "SLI." The Company moved from the
NYSE to the AMEX on April 30, 2003. The following table sets forth the high and
low closing sales price per share of the Company's common stock for the periods
indicated:



                      Year                 Year
               Ended December 31,   Ended December 31,
                      2004                 2003
               ------------------   ------------------
                   HIGH    LOW          HIGH    LOW
                  -----   -----         ----   ----
                                   
Stock Prices
1st Quarter       10.00    8.15         6.90   5.29
2nd Quarter       11.24    9.18         7.25   5.35
3rd Quarter       11.50    9.90         8.00   6.08
4th Quarter       14.46   11.07         8.49   7.50


As of March 2, 2005, there were approximately 741 registered shareholders. The
Company suspended dividend payments during 2001 and has no present intention of
making dividend payments in the foreseeable future. On January 6, 2003, the
Company entered into a new senior credit facility, which has a term of three
years. This facility restricts the Company from paying dividends. Additional
information pertaining to the Company's senior credit facility is found in Note
9 in the Notes to the Consolidated Financial Statements included in Part IV of
this Annual Report on Form 10-K.

For the "Equity Compensation Plan Information," please refer to the Company's
Proxy Statement for the 2005 Annual Meeting of Shareholders, which is
incorporated herein by reference.

On December 12, 2003, the Company announced that its Board of Directors had
authorized the repurchase of up to 10% of the outstanding shares of the common
stock of the Company. Any repurchases would be made in the open market or in
negotiated transactions. For the twelve months ended December 31, 2004, the
Company purchased 545,900 shares pursuant to its stock repurchase program and
56,500 shares through its deferred compensation plans.


                                     Page 16



                      ISSUER PURCHASES OF EQUITY SECURITIES



                                             Total Number
                                              of Shares         Maximum Number
                   Total                  Purchased as Part   of Shares That May
                 Number of     Average       of Publicly       Yet Be Purchased
                   Shares    Price Paid    Announced Plans    under the Plans or
    Period       Purchased    per Share      or Programs           Programs
    ------       ---------   ----------   -----------------   ------------------
                                                  
January 2004      20,600(1)    $ 9.13               --              593,924
February 2004      4,300(1)    $ 9.41               --              593,924
March 2004         4,200(1)    $ 9.67               --              593,924
April 2004        80,250(2)    $ 9.83           71,650              522,274
May 2004          16,500(3)    $ 9.86           11,800              510,474
June 2004          1,700(1)    $10.55               --              510,474
July 2004         16,000(4)    $10.18           16,000              494,474
August 2004       80,850(5)    $11.04           79,650              414,824
September 2004   368,000(6)    $11.48          366,800               48,024
October 2004       1,400(1)    $11.40               --               48,024
November 2004      7,100(1)    $14.02               --               48,024
December 2004      1,500(1)    $13.61               --               48,024
                 -------       ------          -------              -------
Total            602,400(7)    $11.05(8)       545,900
                 =======       ======          =======


(1). The Company purchased these shares other than through a publicly announced
     plan or program in open market transactions or in negotiated transactions.

(2). Of the 80,250 shares purchased, 8,600 shares were purchased by the Company
     other than through a publicly announced plan or program in open market
     transactions or in negotiated transactions.

(3). Of the 16,500 shares purchased, 4,700 shares were purchased by the Company
     other than through a publicly announced plan or program in open market
     transactions or in negotiated transactions.

(4). All the 16,000 shares were purchased through a publicly announced plan or
     program in open market transactions or in negotiated transactions.

(5). Of the 80,850 shares purchased, 1,200 shares were purchased by the Company
     other than through a publicly announced plan or program in open market
     transactions or in negotiated transactions.

(6). Of the 368,000 shares purchased, 1,200 shares were purchased by the Company
     other than through a publicly announced plan or program in open market
     transactions or in negotiated transactions.

(7). Of the aggregate 602,400 shares purchased, an aggregate of 56,500 shares
     were purchased through deferred compensation plans.

(8). The average price per share of the 545,900 shares purchased through a
     publicly announced plan or program was $11.13 per share. The total amount
     paid for the shares was $6,076,000, exclusive of transaction costs of
     $25,000.


                                     Page 17



ITEM 6. SELECTED FINANCIAL DATA

Selected consolidated financial data with respect to the calendar years ended
December 31, 2004, 2003, 2002, 2001, and 2000 are presented below.



                                            Twelve     Twelve     Twelve     Twelve     Twelve
                                            Months     Months     Months     Months     Months
                                             Ended      Ended     Ended       Ended      Ended
                                           December   December   December   December   December
                                             2004       2003       2002       2001       2000
                                           --------   --------   --------   --------   --------
                                               (amounts in thousands except per share data)
                                                                        
Net sales (1)                              $118,804   $105,284   $107,912   $109,770   $123,026
Income (loss) from continuing operations   $  6,301   $  3,742   $    801   $ (8,452)  $  5,454
Income (loss) from discontinued
   operations                              $  2,371   $ (2,422)  $ (1,271)  $ (2,927)  $ (3,754)
Net income (loss) (2)                      $  8,672   $  1,320   $   (470)  $(11,379)  $  1,700
Diluted net income (loss) per common
   share                                   $   1.48   $   0.22   $  (0.08)  $  (2.00)  $   0.30
Shares used in computing diluted net
   income (loss) per common share             5,871      5,956      5,867      5,698      5,757
Cash dividend per common share             $     --   $     --   $     --   $     --   $   0.10

YEAR-END FINANCIAL POSITION
Working capital                            $ 19,496   $ 16,612   $ 10,107   $ 12,132   $ 40,506
Current ratio (3)                              2.05       1.98       1.03       1.01       2.15
Total assets                               $ 63,084   $ 58,421   $ 90,667   $109,911   $115,491
Long-term debt                             $  1,456   $  2,015   $      0   $      0   $ 35,671
Shareholders' equity                       $ 37,687   $ 34,581   $ 32,983   $ 33,204   $ 43,350
Book value per share                       $   6.91   $   5.82   $   5.59   $   5.81   $   7.81

OTHER
Capital expenditures (4)                   $  1,642   $  1,616   $  1,466   $  1,039   $  1,208
Depreciation and amortization              $  2,133   $  1,851   $  2,634   $  3,670   $  3,550


(1)  On November 24, 2003, the Company sold certain assets of SurfTech. On
     January 6, 2003, effective for the year ended December 31, 2002, the
     Company sold EME, and in 2001, the Company sold certain assets of SL Waber.
     Accordingly, the operations of SurfTech, EME, and SL Waber have been
     accounted for as discontinued operations in all periods presented.

(2)  Fiscal 2004 includes a settlement fee of $2,516,000, net of tax, received
     by SL Waber and the recovery of certain legal fees for environmental
     matters in the amount of $392,000, net of tax. Fiscal 2003 includes an
     asset impairment of $275,000 recorded against the carrying value of the
     Company's property located in Camden, New Jersey. Fiscal 2002 includes
     $1,834,000 of special charges related to change of control and proxy costs,
     $703,000 of impairment charges related to the write-off of goodwill,
     $556,000 and $147,000 of asset impairment charges at SurfTech. Fiscal 2001
     includes costs related to inventory write-offs of $2,890,000, asset
     impairment charges of $4,145,000 and restructuring costs of $3,683,000
     related to Condor, and inventory write-offs of $50,000 and restructuring,
     and intangible asset impairment charges of $185,000 and $125,000,
     respectively, related to SurfTech. Fiscal 2000 includes income of $875,000
     related to the settlement of a class action suit against one of the
     Company's insurers, and pre-tax income of $650,000 related to the reduction
     of a contingency reserve for environmental costs and restructuring costs of
     $790,000 related to SL Waber.

(3)  The current ratio for 2002 and 2001 includes all debt classified as
     current, due to the December 31, 2002 maturity date of the former Revolving
     Credit Facility (see Item 7 - Liquidity and Capital Resources). The current
     ratio calculations for all years exclude net current assets and liabilities
     held for sale.

(4)  Excludes assets acquired in business combinations.

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

The Company through its subsidiaries, designs, manufactures and markets power
electronics, power motion, power protection, teleprotection and specialized
communication equipment that is used in a variety of aerospace, computer,
datacom, industrial, medical, telecom, transportation and utility equipment
applications. The Company is comprised of four domestic business segments, two
of which


                                     Page 18



have significant manufacturing operations in Mexico. Most of the Company's sales
are made to customers who are based in the United States. However, over the
years the Company has increased its presence in international markets. The
Company places an emphasis on high quality, well-built, dependable products and
continues its dedication to product enhancement and innovations.

ORGANIZATION OF FINANCIAL INFORMATION

The Company's Management Discussion and Analysis provides material historical
and prospective disclosures intended to enable investors and other users to
assess the Company's financial condition and results of operations. Statements
that are not historical are forward-looking and involve risks and uncertainties,
as discussed under the caption "Forward-Looking Statements" in Item 1 of this
Annual Report on Form 10-K. The consolidated financial statements and notes are
presented in Part IV of this Annual Report on Form 10-K. Included in the
consolidated financial statements are the consolidated statements of operations,
consolidated statements of comprehensive income (loss), consolidated
shareholders' equity and consolidated cash flows. The notes, which are an
integral part of the consolidated financial statements, provide additional
information required to fully understand the nature of amounts included in the
consolidated financial statements. Additionally, in Note 15, the Company
provides a summary of net sales, income from continuing operations, total assets
and depreciation and amortization by industry segment. The Company's Management
Discussion and Analysis provides a more detailed discussion related to the
operations of business segments.

SIGNIFICANT TRANSACTIONS AND FINANCIAL TRENDS

Included in the financial sections of this Annual Report on Form 10-K is a
description of significant transactions or events that have materially affected
earnings, cash flow and business trends. The Company's Management Discussion and
Analysis for fiscal 2004 also includes income and charges related to
discontinued operations. Significant transactions in 2004 that impacted the
Company's financial results included: 1) the expenditure of $6,076,000 to
acquire 545,900 shares of common stock pursuant to the Company's publicly
announced repurchase program; 2) the tax benefit of approximately $1,295,000, or
$0.22 per diluted share, due to research and development tax credits recorded
during 2004; and 3) the accrual of $809,000 in compensation expense related to
certain stock based compensation arrangements with key executives. The
compensation expenses are non-cash charges for the year and are recorded in
selling, general and administrative expenses. In addition, the Company recorded
income related to a settlement fee received by SL Waber, net of tax, in the
amount of $2,516,000 and net proceeds from insurance companies related to the
recovery of certain legal fees for environmental matters in the amount of
$392,000, net of tax. These transactions were reported as part of net income
from discontinued operations. Significant transactions discussed in the
Company's Management Discussion and Analysis for fiscal 2003 include costs and
charges recorded in discontinued operations of (i) $444,000, net of tax, related
to the defense of a class action lawsuit regarding environmental matters
resulting from alleged activities of SurfTech; and (ii) $282,000, net of tax
related to certain machinery and equipment that was being utilized by SurfTech.
SurfTech was sold in November 2003 and is reported as discontinued operations
for all periods presented. Also included in the financial results of 2003 is an
asset impairment charge of $275,000, which was recorded against the carrying
value of the Company's property located in Camden, New Jersey. This impairment
charge is recorded in continuing operations.


                                     Page 19



While these items are important in understanding and evaluating financial
results and trends, other transactions or events, which are disclosed in this
Management Discussion and Analysis, have a material impact on continuing
operations. A complete understanding of these transactions is necessary in order
to estimate the likelihood that these trends will continue.

CRITICAL ACCOUNTING POLICIES

In December 2001, the Securities and Exchange Commission (the "SEC") issued
disclosure guidance for "critical accounting policies." The SEC defines
"critical accounting policies" as those that require application of management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.

The Company's significant accounting policies are described in Note 1 in the
Notes to Consolidated Financial Statements included in Part IV of this Annual
Report on Form 10-K. Not all of these significant accounting policies require
management to make difficult, subjective or complex judgments or estimates.
However, the following policies are deemed to be critical within the SEC
definition.

REVENUE RECOGNITION

Revenue from product sales is recognized at the time the product is shipped,
with provisions established for estimated product returns and returns related to
one business segment's stock scrap program with distributors. Upon shipment, the
Company provides for the estimated cost that may be incurred for product
warranties. Rebates and other sales incentives offered by the Company are
recorded as a reduction of sales at the time of shipment. Revenue recognition is
significant because net sales is a key component of results of operations. In
addition, revenue recognition determines the timing of certain expenses, such as
commissions and royalties. The Company follows generally accepted guidelines in
measuring revenue. Revenue is recorded in accordance with Staff Accounting
Bulletin ("SAB") No. 104. However, certain judgments affect the application of
its revenue policy. For a discussion of the Company's revenue recognition
policies, see Note 1 in the Notes to Consolidated Financial Statements included
in Part IV in this Annual Report on Form 10-K. Revenue results are difficult to
predict, and any shortfall in revenue or delay in recognizing revenue could
cause operating results to vary significantly from quarter to quarter and could
result in future operating losses.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company's estimate for the allowance for doubtful accounts related to trade
receivables is based on two methods. The amounts calculated from each of these
methods are combined to determine the total amount reserved. First, the Company
evaluates specific accounts where it has information that the customer may have
an inability to meet its financial obligations (bankruptcy, etc.). In these
cases, the Company uses its judgment, based on the best available facts and
circumstances, and records a specific reserve for that customer against amounts
due to reduce the receivable to the amount that is expected to be collected.
These specific reserves are reevaluated and adjusted as additional information
is received that impacts the amount reserved. Second, a general reserve is
established for all customers based on several factors, including historical
write-offs as a percentage of sales. If circumstances change (i.e., higher than
expected defaults or an unexpected material adverse change in a major customer's
ability to meet its financial obligation), the Company's estimates of the
recoverability of amounts due could be reduced by a material amount.


                                     Page 20



INVENTORIES

The Company values inventory at the lower of cost or market, and continually
reviews the book value of discontinued product lines to determine if these items
are properly valued. The Company identifies these items and assesses the ability
to dispose of them at a price greater than cost. If it is determined that cost
is less than market value, then cost is used for inventory valuation. If market
value is less than cost, then related inventory is adjusted to market value.

If a write down to the current market value is necessary, the market value
cannot be greater than the net realizable value, which is defined as selling
price less costs to complete and dispose, and cannot be lower than the net
realizable value less a normal profit margin. The Company also continually
evaluates the composition of its inventory and identifies slow-moving and excess
inventories. Inventory items identified as slow-moving or excess are evaluated
to determine if reserves are required. If the Company is not able to achieve its
expectations of the net realizable value of the inventory at current market
value, it would have to adjust its reserves accordingly.

ACCOUNTING FOR INCOME TAXES

The Company's income tax policy records the estimated future tax effects of
temporary differences between the tax basis of assets and liabilities and
amounts reported in the accompanying consolidated balance sheets, as well as
operating loss and tax credit carryforwards. The Company follows the guidelines
under Statement of Financial Accounting Standard ("SFAS") No. 109 in determining
the recoverability of any tax assets recorded on the balance sheet and provides
any necessary allowances as required. As part of the process of preparing its
consolidated financial statements, the Company is required to estimate its
income taxes in each of the jurisdictions in which it operates. This process
involves estimating the actual current tax exposure, together with assessing
temporary differences resulting from the differing treatment of certain items
for tax and accounting purposes. These differences result in deferred tax assets
and liabilities, which are included within the consolidated balance sheet.
Management must then assess the likelihood that deferred tax assets will be
recovered from future taxable income and to the extent it believes that recovery
is not likely, the Company must establish a valuation allowance. To the extent
it establishes a valuation allowance or increases or decreases this allowance in
a period, it must include expense or income, as the case may be, within the tax
provision in the consolidated statement of operations.

Significant management judgment is required in determining the provision for
income taxes, the deferred tax assets and liabilities and any valuation
allowance recorded against deferred tax assets. As of December 31, 2004, the
Company had recorded total valuation allowances of $3,267,000 due to
uncertainties related to the utilization of some deferred tax assets, primarily
consisting of certain research and development tax credits, loss carryforwards
and foreign tax credits, before they expire. The valuation allowance is based on
estimates of taxable income by jurisdiction in which the Company operates and
the period over which deferred tax assets will be recoverable. In the event that
actual results differ from these estimates or these estimates are adjusted in
future periods, the Company may need to establish an additional valuation
allowance that could materially impact its consolidated financial position and
results of operations.

The net deferred tax assets as of December 31, 2004 were $6,324,000, net of
valuation allowances of


                                     Page 21


$3,267,000. The carrying value of the Company's net deferred tax assets assumes
that the Company will be able to generate sufficient future taxable income in
certain tax jurisdictions, based on estimates and assumptions. If these
estimates and related assumptions change in the future, the Company may be
required to record additional valuation allowances against its deferred tax
assets resulting in additional income tax expense in the consolidated statement
of operations. Management evaluates the reliability of the deferred tax assets
and assesses the need for additional valuation allowances quarterly.

Our effective tax rate includes the impact of certain undistributed foreign
earnings for which no U.S. taxes have been provided because such earnings are
planned to be reinvested indefinitely outside the United States. Our 2004
results do not reflect the impact of the American Jobs Creation Act of 2004 (the
"Jobs Act"). We have completed the process of re-evaluating our position with
respect to the indefinite reinvestment of foreign earnings to take into account
the possible election of the repatriation provisions contained in the Jobs Act
and it had no impact on the Company.

LEGAL CONTINGENCIES

The Company is currently involved in certain legal proceedings. As discussed in
Note 12 in the Notes to the Consolidated Financial Statements included in Part
IV to this Annual Report on Form 10-K, the Company has accrued an estimate of
the probable costs for the resolution of these claims. This estimate has been
developed after investigation and is based upon an analysis of potential
results, assuming a combination of litigation and settlement strategies.
Management does not believe these proceedings will have a material adverse
effect on the Company's consolidated financial position. It is possible,
however, that future results of operations for any particular quarterly or
annual period could be materially affected by changes in these assumptions, or
the effectiveness of these strategies, related to these proceedings.

IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS

The Company's long-lived and intangible assets primarily consist of fixed
assets, goodwill and other intangible assets. Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") requires
that goodwill be tested for impairment at the reporting unit level (operating
segment or one level below an operating segment) on an annual basis and between
annual tests in certain circumstances. Application of the goodwill impairment
test requires judgment, including the identification of reporting units,
assigning assets and liabilities to reporting units, assigning goodwill to
reporting units, and determining the fair value of each reporting unit.
Significant judgments required to estimate the fair value of reporting units
include estimating future cash flows, determining appropriate discount rates and
other assumptions. Changes in these estimates and assumptions could materially
affect the determination of fair value for each reporting unit.

Effective January 1, 2002, the Company adopted SFAS 142 and performed a
transitional test of its goodwill and intangible assets. No impairment charges
were recorded as a result of the initial impairment test. Goodwill was also
tested for impairment in the fourth quarter of 2002. Impairment losses recorded
in the future could have a material adverse impact on the Company's financial
condition and results of operations.

The Company periodically reviews the carrying value of its long-lived assets
held and used, other than goodwill and intangible assets with indefinite lives,
and assets to be disposed of whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company


                                     Page 22



assesses the recoverability of the asset by estimated cash flows and at times by
independent appraisals. It compares estimated cash flows expected to be
generated from the related assets, or the appraised value of the asset, to the
carrying amounts to determine whether impairment has occurred. If the estimate
of cash flows expected to be generated changes in the future, the Company may be
required to record impairment charges that were not previously recorded for
these assets. If the carrying value of a long-lived asset is considered
impaired, an impairment charge is recorded for the amount by which the carrying
value of the long-lived asset exceeds its fair value.

ENVIRONMENTAL EXPENDITURES

The Company is subject to United States and Mexican environmental laws and
regulations concerning emissions to the air, discharges to surface and
subsurface waters, and generation, handling, storage, transportation, treatment
and disposal of waste materials. The Company is also subject to other federal,
state and local environmental laws and regulations, including those that require
it to remediate or mitigate the effects of the disposal or release of certain
chemical substances at various sites, including some where the Company has
ceased operations. It is impossible to predict precisely what effect these laws
and regulations will have in the future.

Expenditures that relate to current operations are charged to expense or
capitalized, as appropriate. Expenditures that relate to an existing condition
caused by past operations are expensed and recorded as part of discontinued
operations. Expenditures include costs of remediation and legal fees to defend
against claims for environmental liability. Liabilities are recorded when
remedial efforts are probable and the costs can be reasonably estimated. The
liability for remediation expenditures includes, as appropriate, elements of
costs such as site investigations, consultants' fees, feasibility studies,
outside contractor expenses and monitoring expenses. Estimates are not
discounted, and they are not reduced by potential claims for recovery from
insurance carriers. The liability is periodically reviewed and adjusted to
reflect current remediation progress, prospective estimates of required activity
and other relevant factors, including changes in technology or regulations.

The above listing is not intended to be a comprehensive list of all of the
Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternatives would not produce a materially different result. See the Company's
audited Consolidated Financial Statements and Notes thereto included in Part IV
of this Annual Report on Form 10-K, which contain accounting policies and other
disclosures required by generally accepted accounting principles.

LIQUIDITY AND CAPITAL RESOURCES



                            December 31,   December 31,    Dollar    Percentage
                                2004           2003       Variance    Variance
                            ------------   ------------   --------   ----------
                                              (in thousands)
                                                         
Cash and cash equivalents      $ 2,659        $ 3,501      $ (842)      (24%)
Bank debt                      $ 2,015        $ 2,902      $ (887)      (31%)
Working capital                $19,496        $16,612      $2,884        17%
Shareholder's equity           $37,687        $34,581      $3,106         9%
                               -------        -------      ------        --



                                     Page 23



At December 31, 2004, the Company maintained a cash balance of $2,659,000, with
outstanding bank debt of $2,015,000. Availability under the Senior Credit
Facility was $12,273,000. During the year ended December 31, 2004 ("2004"), the
net cash provided by continuing operating activities was $4,543,000, as compared
to net cash provided by continuing operating activities of $9,964,000 during the
year ended December 31, 2003 ("2003"). The primary sources of cash provided by
continuing operating activities for 2004 were net income from continuing
operations of $6,301,000 and an increase in accounts payable in the amount of
$1,921,000. These sources of cash were partially offset by an increase in
accounts receivable of $2,714,000, an increase in inventory in the amount of
$4,830,000 and payments made under the Company's 2003 bonus and incentive
programs. The increase in accounts receivable and inventory were primarily
related to the Company's sales growth of 13%. The primary sources of cash
provided by continuing operating activities for 2003 were net income from
continuing operations of $3,742,000, the reduction of accounts receivable in the
amount of $4,366,000 (primarily related to the receipt of income tax refunds and
recoverable income taxes) and the reduction of inventory levels of $2,711,000.
These sources of cash were partially offset by payments made under the Company's
2002 bonus and incentive programs.

During 2004, net cash used in investing activities was $633,000, primarily
related to the purchases of machinery and equipment in the amount of $1,642,000.
This use of cash was partially offset by proceeds of $1,000,000, representing
the final installment on the sale of EME. During 2003, net cash provided by
investing activities was $5,986,000, primarily related to cash proceeds of
$7,000,000 received from the sale of EME and $600,000 received from the sale of
SurfTech, partially offset by $1,616,000 in capital expenditures.

During 2004, net cash used in financing activities was $6,603,000, primarily due
to the purchase of common stock. During 2004, the Company expended $6,233,000 to
reacquire its shares, of which $6,076,000 related to the purchase of 545,900
shares of common stock at an average price of $11.13 per share. These purchases
were made under the Company's repurchase program approved by the Board of
Directors on December 12, 2003. Also during this period, the Company made
payments of $887,000 on its two term loans and overadvance under the Senior
Credit Facility. These uses of cash were partially offset by proceeds from stock
options exercised during the year in the amount of $517,000. During 2003, net
cash used in financing activities was $14,578,000, primarily due to the payoff
of the Company's former revolving credit facility of $17,557,000, partially
offset by $3,518,000 related to the net proceeds from the Senior Credit
Facility. The Company is in discussions with several commercial banks to
refinance the Senior Credit Facility on or before its expiration date which is
January 6, 2006.

On January 6, 2003, the Company entered into a three-year Senior Secured Credit
Facility (the "Senior Credit Facility") with LaSalle Business Credit LLC. The
Senior Credit Facility provides for a revolving loan facility and two term
loans, up to a maximum indebtedness of $20,000,000. The revolving loan of up to
$16,810,000 is based upon eligible receivables and inventory, as well as an
overadvance amount of $1,500,000, which was paid in full on April 7, 2004. The
two term loans of $2,350,000 and $840,000 are amortized over a three-year term.
The Senior Credit Facility restricts investments, acquisitions, capital
expenditures and dividends. It contains financial covenants relating to minimum
levels of net worth, fixed charge coverages, and EBITDA levels, as defined. The
Senior Credit Facility bears interest ranging from the prime rate plus .5% to 
the prime rate plus 2%. The Senior Credit Facility is


                                     Page 24




secured by all of the Company's assets. At December 31, 2004, the outstanding
term loan balances were $1,600,000 and $415,000, or a total of $2,015,000.
Availability under the Senior Credit Facility at December 31, 2004 was
$12,273,000.

The Company's current ratio was 2.05 to 1 at December 31, 2004 and 1.98 to 1 at
December 31, 2003. This ratio has remained relatively constant, although current
assets increased by $4,403,000 and current liabilities increased by $1,519,000
from the prior year.

As a percentage of total capitalization, consisting of debt and shareholders'
equity, total borrowings by the Company were 5% at December 31, 2004 and 8% at
December 31, 2003. At December 31, 2004, total borrowings decreased by $887,000,
compared to December 31, 2003.

Capital expenditures of $1,642,000 were made in 2004, primarily related to
machinery and equipment purchases, compared to $1,616,000 in 2003. The capital
expenditures made in 2003 related to equipment purchases, a new management
information system and building improvements.

The Company has been able to generate adequate amounts of cash to meet its
operating needs.

With the exception of the segment reported as "Other" (which consists primarily
of corporate office expenses, financing activities, public reporting costs and
accruals not specifically allocated to the reportable business segments) all of
the Company's operating segments were profitable in 2004.

CONTRACTUAL OBLIGATIONS

The following is a summary of the Company's contractual obligations at December
31, 2004 for the periods indicated:



                    Less than   1 to 3   3 to 5    After
                      1 Year     Years    years   5 Years    Total
                    ---------   ------   ------   -------   ------
                                   (in thousands)
                                             
Operating Leases      $1,249    $  996      --       --     $2,245
Debt                     559     1,456      --       --      2,015
Capital Leases            80        80      --       --        160
Other Obligations         83       250     167      261        761
                      ------    ------     ---      ---     ------
Total                 $1,971    $2,782     167      261     $5,181
                      ======    ======     ===      ===     ======


Contractual obligations with respect to the two term loans under the Senior
Credit Facility are $559,000 due in less than one year and $1,456,000 due in one
to two years.

Other obligations include the Company's withdrawal liability to a
union-administered defined benefit multi-employer pension plan to which SurfTech
had made contributions (see Note 2 to the Consolidated Financial Statements).

OFF-BALANCE SHEET ARRANGEMENTS

It is not the Company's usual business practice to enter into off-balance sheet
arrangements such as


                                     Page 25



guarantees on loans and financial commitments, indemnification arrangements and
retained interests in assets transferred to an unconsolidated entity for
securitization purposes. Consequently, the Company has no off-balance sheet
arrangements, except for operating lease commitments disclosed in the table
above, that have, or are reasonably likely to have, a material current or future
effect on its financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2004 COMPARED WITH YEAR ENDED DECEMBER 31, 2003



                                                 Year Ended December 31,
                                      ---------------------------------------------
                                        2004       2003     $ Variance   % Variance
                                      --------   --------   ----------   ----------
                                                      (in thousands)
                                                             
NET SALES
Power Electronics Group:
   Condor                             $ 41,457   $ 39,450    $ 2,007          5%
   Teal                                 30,265     20,393      9,872         48%
                                      --------   --------    -------        ---
      Total                             71,722     59,843     11,879         20%
                                      --------   --------    -------        ---
SL-MTI                                  24,497     22,053      2,444         11%
RFL                                     22,585     23,388       (803)        (3%)
                                      --------   --------    -------        ---
Consolidated                          $118,804   $105,284    $13,520         13%
                                      ========   ========    =======        ===




                                                 Year Ended December 31,
                                      --------------------------------------------
                                        2004       2003    $ Variance   % Variance
                                      --------   -------   ----------   ----------
                                                     (in thousands)
                                                            
INCOME FROM CONTINUING OPERATIONS
Power Electronics Group:
   Condor                             $ 3,789    $ 3,377    $   412         12%
   Teal                                 4,635      2,671      1,964         74%
                                      -------    -------    -------        ---
      Total                             8,424      6,048      2,376         39%
                                      -------    -------    -------        ---
SL-MTI                                  2,827      1,957        870         44%
RFL                                     2,091      2,236       (145)        (6%)
Other expenses and Corporate office    (5,033)    (3,563)    (1,470)       (41%)
                                      -------    -------    -------        ---
Consolidated                          $ 8,309    $ 6,678    $ 1,631         24%
                                      =======    =======    =======        ===


Consolidated net sales from continuing operations for 2004, compared to 2003
increased by $13,520,000, or 13%. This increase is primarily due to a $9,872,000
net sales increase at Teal, a $2,444,000 net sales increase at SL-MTI and a
$2,007,000 net sales increase at Condor. Net sales increases from 2003 at Teal,
SL-MTI and Condor were 48%, 11% and 5%, respectively.


                                     Page 26



The Company's operating income increased to $8,309,000 in 2004, compared to
$6,678,000 in 2003. Other than RFL, all of the Company's business segments had
increases in operating income in 2004, as compared to 2003. RFL's operating
income decreased $145,000, or 6%.

Income from continuing operations in 2004 was $6,301,000, or $1.08 per diluted
share, compared to net income from continuing operations in 2003 of $3,742,000,
or $0.63 per diluted share. Income from continuing operations benefited by
approximately $1,295,000, or $0.22 per diluted share, due to research and
development tax credits recorded during 2004. The Company's business segments
and the components of operating expenses are discussed more fully in the
following sections.

The Power Electronics Group had an increase in net sales of $11,879,000, or 20%,
and an increase in income from operations of $2,376,000, or 39%, over the prior
year. The increase in net sales within the Power Electronics Group is primarily
attributable to increased sales at Teal of its medical product line, and to a
lesser extent its semiconductor product line. Condor's increase is related to
increases in sales to OEMs in the medical and industrial markets. International
sales, which represent approximately 12% of Condor's total net sales, decreased
9% from the prior year. Net sales of telecommunications products decreased
approximately 35% in 2004, compared to 2003.

SL-MTI's net sales in 2004 increased approximately $2,444,000, or 11%, while
income from operations increased by $870,000, or 44%, compared to net sales and
income from operations in 2003. Contributing to the increase in net sales was
significant increases in the windings and DC motor product lines, which
increased by 20% and 11%, respectively, compared to 2003. By market segment, the
largest contributor to the net sales increases was the military market. In
addition to increased net sales, improved gross margins contributed to higher
income from operations from the prior year.

RFL's net sales in 2004 decreased approximately $803,000, or 3%, and income from
operations decreased approximately $145,000, or 6%, compared to net sales and
income from operations in 2003. RFL has experienced sales decreases throughout
its product line, with the exception of a sales increase of $632,000, or 7%, in
its carrier communications products line. RFL is experiencing weak demand in the
U.S. market, as large infrastructure expansion projects by electric power
utility companies continued to be deferred in favor of smaller emergency and
maintenance projects. RFL maintained its gross margins, compared to 2003, due to
certain cost containment programs. Despite lower sales volume, RFL has increased
its expenditures for engineering and product development by approximately 7%,
compared to 2003.

COST OF PRODUCTS SOLD

As a percentage of net sales, cost of products sold in 2004 was approximately
64%, as compared to approximately 63% in 2003. Although aggregate cost of
products sold, as a percentage of net sales, remained relatively constant
year-to-year, there were differences among the business segments. The Power
Electronics Group cost of products sold percentage increased to 65% in 2004,
from 63% in 2003. This increase was due to increases in the cost of raw
materials at Teal, and to a lesser extent, product mix. SL-MTI's decreased its
cost of products sold percentage by 3%, primarily due to increased sales volume
and improved operating efficiencies at its manufacturing facility in Matamoros,
Mexico. RFL's cost of products sold percentage remained constant in 2004,
compared to 2003, despite a decrease in sales volume, due to product mix and
cost containment measures.


                                     Page 27



ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES

Engineering and product development expenses in 2004 were $8,951,000, an
increase of approximately $1,095,000, or 14%, as compared to 2003. As a
percentage of net sales, engineering and product development expenses in 2004
and 2003 were approximately 8%. All of the Company's business segments increased
their engineering and product development expenditures in 2004, compared to
2003. Condor and SL-MTI significantly increased engineering and product
development expenses, with annual increases of 18% and 24%, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for 2004 were approximately 20% of
net sales, compared to 21% in 2003. These expenses increased by $1,215,000, or
5%, over the comparative periods. The major reason for the increase was costs
related to the increase in sales volume of 13%. Also contributing to the
increase was $809,000 in compensation expense related to certain stock based
compensation arrangements with key executives, which were non-cash charges for
the period. In addition, the Company named an Executive Vice President and Chief
Operating Officer at the beginning of the year, which was a position that did
not exist in 2003.

DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses in 2004 were $2,133,000, an increase of
approximately $282,000, or 15%, compared to 2003. Depreciation expense for 2004
and 2003 was approximately 2% of sales.

AMORTIZATION OF DEFERRED FINANCING COSTS

In connection with entering into the Senior Credit Facility on January 6, 2003,
the Company incurred approximately $1,342,000 in costs. These costs have been
deferred and are being amortized over the three-year term of the Senior Credit
Facility. The amortization expense was $447,000 in each of 2004 and 2003,
respectively.

INTEREST INCOME (EXPENSE)

In 2004, interest income was $102,000, compared to $172,000 in 2003. Interest
expense in 2004 was $347,000, compared to $380,000 in 2003. The decrease in
interest expense for 2004 is related to significantly reduced debt levels.

TAXES

The effective tax rate for 2004 was approximately 17%, compared to 38% in 2003.
The effective tax rate for 2004 is significantly lower than the statutory rate
primarily due to research and development tax credits recorded during the year.

DISCONTINUED OPERATIONS

In 2004, the Company recorded income from discontinued operations, net of tax,
of $2,371,000. This amount is primarily related to a settlement fee received by
SL Waber, in the amount of $2,516,000, net of tax, the reversal of certain net
tax reserves, related to EME of $225,000, net of expenses, and insurance
proceeds related to environmental matters in the amount of $392,000, net of tax.
These


                                     Page 28



income amounts were partially offset by current environmental, legal and
litigation charges related to discontinued operations. In 2003, the Company
recorded a loss of $2,422,000, net of tax, from discontinued operations. This
amount consisted primarily of the net loss for Surf Tech, in the amount of
$1,450,000 and after-tax environmental costs of $682,000.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED DECEMBER 31, 2002



                                                   Year Ended December 31,
                                     --------------------------------------------------
                                       2003          2002       $ Variance   % Variance
                                     --------   -------------   ----------   ----------
                                                       (in thousands)
                                                                 
NET SALES
Power Electronics Group:
   Condor                            $ 39,450      $ 38,058      $ 1,392          4%
   Teal                                20,393        19,608          785          4%
                                     --------      --------      -------        ---
      Total                            59,843        57,666        2,177          4%
                                     --------      --------      -------        ---
SL-MTI                                 22,053        23,007         (954)        (4%)
RFL                                    23,388        27,239       (3,851)       (14%)
                                     --------      --------      -------        ---
Consolidated                         $105,284      $107,912      $(2,628)        (2%)
                                     ========      ========      =======        ===




                                                  Year Ended December 31,
                                     --------------------------------------------------
                                       2003          2002       $ Variance   % Variance
                                     -------    -------------   ----------   ----------
                                                        (in thousands)
                                                                 
INCOME FROM OPERATIONS
Power Electronics Group:
   Condor                            $ 3,377       $ 1,457       $ 1,920        132%
   Teal                                2,671         1,873           798         43%
                                     -------       -------       -------        ---
      Total                            6,048         3,330         2,718         82%
                                     -------       -------       -------        ---
SL-MTI                                 1,957         1,873            84          4%
RFL                                    2,236         3,435        (1,199)       (35%)
Other expenses and Corporate office   (3,563)       (5,526)        1,963         36%
                                     -------       -------       -------        ---
Consolidated                         $ 6,678       $ 3,112       $ 3,566        115%
                                     =======       =======       =======        ===


Consolidated net sales from continuing operations for 2003, decreased by
$2,628,000, or 2%, compared to 2002. This decrease is due to a net sales
decrease at RFL of $3,851,000, or 14%, and a net sales decrease at SL-MTI of
$954,000, or 4%. These decreases were partially offset by an increase in net
sales at the Power Electronics Group of $2,177,000, or 4%. Consolidated net
sales for 2002 do not include net sales of $29,895,000, relating to the combined
sales of EME and SurfTech, which are classified as discontinued operations.


                                     Page 29



The Company's income from operations increased to $6,678,000 in 2003, compared
to $3,112,000 in 2002. Other than RFL, all of the Company's business segments
had increases in income from operations in 2003, as compared to 2002. RFL's
income from operations decreased $1,199,000, or 35%.

Income from continuing operations in 2003 was $3,742,000, or $0.63 per diluted
share, compared to income from continuing operations in 2002 of $801,000, or
$0.14 per diluted share. The net income in 2002 included restructuring costs at
Condor of $230,000 and special charges related to change of control and proxy
costs included in Other expenses of $1,834,000. The Company's business segments
and the components of operating expenses are discussed more fully in the
following sections.

The Power Electronics Group had an increase in net sales of $2,177,000, or 4%,
and an increase in income from operations of $2,718,000, or 82%, over the prior
year. The increase in net sales within the Power Electronics Group is primarily
attributable to an increase in sales at Condor of $1,392,000, or 4%. Increased
net sales to distributors of medical products accounted for the improvement. In
addition, there were lower returns from distributors in 2003, as compared to
2002, primarily due to a new distributor scrap program.

SL-MTI's net sales decreased approximately $954,000, or 4%, while income from
operations increased by $84,000, or 4%, compared to the prior year. Net sales of
windings products decreased by $2,811,000, or 39%. This decrease was partially
offset by an increase in net sales of DC brushless motors of $2,097,000, or 19%.
The increase in income from operations was primarily due to an inventory
write-off of $387,000, which was recorded in 2002. Without this $387,000 charge,
income from operations for 2003 would have been less than in 2002, as a result
of the decrease in net sales.

RFL's net sales decreased approximately $3,851,000, or 14%, and income from
operations decreased approximately $1,199,000, or 35%, compared to net sales and
income from operations from the prior year. RFL experienced a net sales decrease
of $3,846,000, or 29%, in its teleprotection product line and of $1,498,000, or
56%, in its protective relaying product line. These decreases were partially
offset by a net sales increase of $1,355,000, or 18%, in its carrier
communications product line. In 2003, RFL experienced inconsistent procurement
patterns from electric power utility companies, who are the major purchasers of
its teleprotection and protective relaying product lines.

COST OF PRODUCTS SOLD

As a percentage of net sales, cost of products sold was approximately 63% in
2003, as compared to approximately 64% in 2002. Although the cost of products
sold, as a percentage of sales, remained relatively constant year-to-year, the
business segments' product mix changed considerably. The Power Electronics Group
cost of products sold percentage improved from 67% in 2002 to 63% in 2003. This
was due in part to the increase in sales. In addition, Condor made several
productivity improvements at its manufacturing facility in Mexicali, Mexico. In
2002, significant inefficiencies and start-up costs were incurred as Condor
transferred its remaining telecommunications product line from its Reynosa,
Mexico facility to its current manufacturing location in Mexicali, Mexico. The
improvement in SL-MTI's cost of products sold percentage was primarily due to an
inventory charge being taken in 2002 and a slight improvement in manufacturing
efficiency at its plant in Matamoros, Mexico. RFL's increase in its cost of
products sold percentage was due to a significant reduction in sales.


                                     Page 30



ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES

Engineering and product development expenses in 2003 were $7,856,000, an
increase of approximately $401,000, or 5%, as compared to 2002. As a percentage
of net sales, engineering and product development expenses were 7% in each of
2003 and 2002. The increase of $401,000 was primarily generated by SL-MTI, which
experienced higher net engineering costs from the prior year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses in 2003 were $22,614,000, a
decrease of $662,000, or 3%, compared to 2002. Reduced selling, general and
administrative costs was the result of lower sales. As a percentage of net
sales, selling, general and administrative expenses were approximately 21% in
each of 2003 and 2002.

DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses in 2003 were $1,851,000, a decrease of
approximately $783,000, or 30%, compared to 2002. The reduction in 2003 was due
to the Company's reduced fixed asset base.

AMORTIZATION OF DEFERRED FINANCING COSTS

In connection with entering into the Senior Credit Facility on January 6, 2003,
the Company incurred approximately $1,342,000 in costs. These costs have been
deferred and are being amortized over the three-year term of the Senior Credit
Facility. Amortization for 2003 was $447,000.

INTEREST INCOME (EXPENSE)

In 2003, interest income was $172,000, compared to $25,000 in 2002. Interest
expense in 2003 was $380,000, compared to $2,256,000 in 2002. Included in
interest expense in 2002 is the payment of a facility fee of $780,000, resulting
from the Company's inability to pay down in full its former credit facility by
October 31, 2002. (See Note 9 in the Notes to Consolidated Financial Statements
included in Part IV of this Annual Report on Form 10-K). The decrease in
interest expense for 2003 is related to significantly reduced debt levels and
lower interest rates.

TAXES

The effective tax rate for 2003 was higher than the statutory rate due primarily
to the impact of state income taxes.

NEW ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

In November 2004, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151 amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage) and requires these costs be treated as
current period charges. In addition, SFAS No. 151 requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. These provisions of SFAS No. 151 are
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. We are currently evaluating the impact of SFAS No. 151 on our
financial position and results of operations.


                                     Page 31



In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 153, "Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29"
("SFAS No. 153"). SFAS No. 153 amends the guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions", which is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged, with certain exceptions. SFAS No. 153 amends APB Opinion
29 to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of SFAS No. 153
are effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. We are currently evaluating the impact of SFAS
NO. 153 on our financial position and results of operations.

In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R
is a revision of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and its related implementation
guidance. SFAS No. 123R establishes standards for the accounting of transactions
in which an entity exchanges its equity instruments for goods or services. It
also addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
SFAS No. 123R focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. SFAS No.
123R requires a public entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award (with limited exceptions). That cost will be recognized over
the period during which an employee is required to provide service in exchange
for the award. The provisions of SFAS No. 123R are effective for public entities
that do not file as small business issuers as of the beginning of the first
interim or annual reporting period that begins after June 15, 2005. The Company
is currently evaluating the impact of SFAS No. 123R on its financial position
and results of operations. The Company may experience a negative impact on its
financial position and results of operations by the third quarter of 2005. This
negative impact could be the consequence of not recognizing an expense at the
time the Company originally issued employee stock options.

ENVIRONMENTAL

See "Item 3. Legal Proceedings" in Part I of this Annual Report on Form 10-K.


                                     Page 32



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest and foreign
currency exchange rates. Changes in the market interest rate affect both
interest paid and earned by the Company. The Company's investments and
outstanding debt bear variable interest rates. As of December 31, 2004, debt
consists primarily of the Senior Credit Facility, which bears interest at
interest rates ranging from prime rate plus .5% to the prime rate plus 2%. The
Company manufactures some of its products in Mexico and purchases some
components in foreign markets. All other foreign market component purchases are
primarily invoiced in U.S. dollars. Changes in interest and foreign currency
exchange rates did not have a material impact on earnings for 2004, and are not
expected to have a material impact on earnings in 2005.

See generally, "Item 1. Business - Risk Factors" and "Item 1. Business - Foreign
Operations" in Part I of this Annual Report on Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements and supplementary data, together with the
report of Grant Thornton LLP, independent registered public accounting firm, are
included in Part IV of this Annual Report on Form 10-K.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES: The Company, under the
supervision and with the participation of its management, including the Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the design and operation of the Company's "disclosure controls and
procedures," as such term is defined in Rules 13a-15e and 15d-15e promulgated
under the Securities Exchange Act of 1934, as amended, (the "Exchange Act").
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures
were effective as of the end of the period covered by this Annual Report on Form
10-K, and provide reasonable assurance that information required to be disclosed
by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms.

CHANGES IN INTERNAL CONTROLS: There have been no changes in internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

It should be noted that any control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the


                                     Page 33



inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.

ITEM 9B. OTHER INFORMATION

On March 21, 2005, a payment of $250,000 was awarded by the Compensation
Committee to Steel Partners, Ltd. ("SPL"), a company controlled by the Chairman
of the Board and Chief Executive Officer of the Company, Warren Lichtenstein, on
account of SPL's services in 2004 in recognition of SPL's very significant
contributions to the Company's success, including the improvement in operating
performance and the reduction of indebtedness, as well as the improvement in
returns on invested capital and the Company's stock price, among other things.
SPL is also party to a management agreement with the Company which provides for
payments of $475,000 per annum by the Company to SPL on account of management
and advisory services provided by SPL to the Company. See Note 17, Related Party
Transactions, to the Financial Statements.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Apart from certain information concerning the Company's executive officers,
which is set forth in Part I of this Annual Report on Form 10-K, the information
required under this Item is incorporated herein by reference to the applicable
information in the Proxy Statement for the Company's 2005 Annual Meeting of
Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required under this Item is incorporated by reference to the
Proxy Statement for the Company's 2005 Annual Meeting of Shareholders.

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

The information required under this Item is incorporated by reference to the
Proxy Statement for the Company's 2005 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this Item is incorporated by reference to the
Proxy Statement for the Company's 2005 Annual Meeting of Shareholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding the Company's independent auditor fees and services and
other information required by Item 14 of Part III of this Report is incorporated
herein by reference to the Proxy Statement for the Company's 2005 Annual Meeting
of Shareholders.


                                     Page 34



PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) (1) FINANCIAL STATEMENTS

The information required by this Item is included in Item 8 of Part II of this
Annual Report on Form 10-K. Consolidated financial statements and supplementary
data, together with the report of Grant Thornton LLP, independent registered
public accounting firm, are filed as part of this report. See Index to Financial
Statements and Financial Statement Schedule which appears on page F-1 herein.

(A) (2) FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule for the years ended December 31,
2004, December 31, 2003, and December 31, 2002 are submitted herewith:

     Schedule II - Valuation and Qualifying Accounts

All other schedules are omitted because (a) the required information is shown
elsewhere in this Annual Report on Form 10-K, or (b) they are inapplicable, or
(c) they are not required.

See Index at page F-1 to Consolidated Financial Statements included in Part IV
of this Annual Report on Form 10-K.

(A) (3) EXHIBITS

The information required by this Item is listed in the Exhibit Index of this
Annual Report on Form 10-K.


                                     Page 35



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

SL INDUSTRIES, INC.
(Company)


By /s/ Warren Lichtenstein                                 Date   March 21, 2005
   ----------------------------------
   Warren Lichtenstein

                                POWER OF ATTORNEY

     SL INDUSTRIES, INC. AND EACH OF THE UNDERSIGNED DO HEREBY APPOINT GLEN
KASSAN AND WARREN LICHTENSTEIN, AND EACH OF THEM SEVERALLY, ITS OR HIS TRUE AND
LAWFUL ATTORNEY TO EXECUTE ON BEHALF OF SL INDUSTRIES, INC. AND THE UNDERSIGNED
ANY AND ALL AMENDMENTS TO THIS ANNUAL REPORT ON FORM 10-K AND TO FILE THE SAME
WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION; EACH OF SUCH ATTORNEYS SHALL HAVE THE POWER
TO ACT HEREUNDER WITH OR WITHOUT THE OTHER.

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY
AND IN THE CAPACITIES AND ON THE DATE INDICATED.


                                                            


By /s/ Warren Lichtenstein                                 Date   March 21, 2005
   -----------------------------------------------------
   Warren Lichtenstein - Chairman of the Board
   and Chief Executive Officer
   (Principal Executive Officer)


By /s/ Glen Kassan                                         Date   March 21, 2005
   -----------------------------------------------------
   Glen Kassan - President and Director


By /s/ David R. Nuzzo                                      Date   March 21, 2005
   -----------------------------------------------------
   David R. Nuzzo - Vice President,
   Chief Financial Officer,
   Treasurer and Secretary
   (Principal Financial Officer)


By /s/ James C. Taylor                                     Date   March 21, 2005
   -----------------------------------------------------
   James C. Taylor - Executive Vice President
   and Chief Operating Officer


By /s/ J. Dwane Baumgardner                                Date   March 21, 2005
   -----------------------------------------------------
   J. Dwane Baumgardner - Director


By /s/ Avrum Gray                                          Date   March 21, 2005
   -----------------------------------------------------
   Avrum Gray - Director


By /s/ James R. Henderson                                  Date   March 21, 2005
   -----------------------------------------------------
   James R. Henderson - Director


By /s/ James A. Risher                                     Date   March 21, 2005
   -----------------------------------------------------
   James A. Risher - Director


By /s/ Mark E. Schwarz                                     Date   March 21, 2005
   -----------------------------------------------------
   Mark E. Schwarz - Director



                                     Page 36



INDEX TO EXHIBITS

The exhibit number, description and sequential page number in the original copy
of this document where exhibits can be found as follows:



Exhibit #                                Description
---------                                -----------
         
2.1         Securities Purchase Agreement by and among SL Industries, Inc., SL
            Industries Vertrieb GmbH, and DCX-Chol Holding GmbH, DCX-Chol
            Enterprises, Inc. and Chol Enterprises, Inc. dated as of January 3,
            2003. Incorporated by reference to Exhibit 2.1 to the Company's
            report on Form 8-K filed with the Securities and Exchange Commission
            on January 17, 2003.

3.1         Restated Articles of Incorporation. Incorporated by reference to
            Exhibit 3.1 to the Company's report on Form 10-K for the fiscal year
            ended December 31, 2000.

3.2         Restated By-Laws. Incorporated by reference to Exhibit 3.2 to the
            Company's report on Form 10-K for the fiscal year ended December 31,
            2000.

10.1        Supplemental Compensation Agreement for the Benefit of Byrne
            Litschgi. Incorporated by reference to Exhibit 10.1 to the Company's
            report on Form 8 dated November 9, 1990.

10.2*       1988 Deferred Compensation Agreement with a Certain Officer.
            Incorporated by reference to Exhibit 10.6 to the Company's report on
            Form 8 dated November 9, 1990.

10.3*       1991 Long Term Incentive Plan of SL Industries, Inc., as amended, is
            incorporated by reference to Appendix to the Company's Proxy
            Statement for its 1995 Annual Meeting held November 17, 1995,
            previously filed with the Securities and Exchange Commission.

10.4*       Capital Accumulation Plan. Incorporated by reference to the
            Company's report on Form 10K/A for the fiscal period ended July 31,
            1994.

10.5*       Change-in-Control Agreement dated May 1, 2001 between the Company
            and James C. Taylor. Incorporated by reference to Exhibit 10.9 to
            the Company's report on Form 10-K for the fiscal year ended December
            31, 2003.

10.6*       Bonus Agreement dated August 5, 2002 between the Company and James
            C. Taylor. Incorporated by reference to Exhibit 10.10 to the
            Company's report on Form 10-K for the fiscal year ended December 31,
            2003.

10.7        Loan and Security Agreement dated effective January 6, 2003 among
            LaSalle Business Credit LLC, the Agent for Lender, Standard Federal
            National Association, the Lender, SL Industries, Inc. and SL
            Delaware, Inc., collectively, borrowers and Condor D.C. Power
            Supplies, Inc., Teal Electronics Corporation, RFL Electronics, Inc.,
            SL Montevideo Technology, Inc., SL Surface Technologies, Inc., SL
            Delaware Holdings, Inc., SL Auburn, Inc., Waber Power Ltd., SLW
            Holdings, Inc., Condor



                                     Page 37




         
            Holdings, Inc. and Cedar Corporation, collectively, guarantors.
            Incorporated by reference to Exhibit 10.31 to the Company's report
            on Form 10-K for the fiscal year ended December 31, 2002.

10.8*       Management Agreement dated as of January 23, 2002 between the
            Company and Steel Partners, Ltd. Incorporated by reference to
            Exhibit 10.12 to the Company's report on Form 10-K for the fiscal
            year ended December 31, 2003.

14          Code of Conduct and Ethics. Incorporated by reference to Exhibit 14
            to the Company's report on Form 10-K for the fiscal year ended
            December 31, 2003.

21          Subsidiaries of the Company (transmitted herewith).

23          Consent of Independent Registered Public Accounting Firm
            (transmitted herewith).

31.1        Certification by Principal Executive Officer pursuant to Rule
            13a-15(e) or 15(d)-15(e) of the Securities Exchange Act of 1934, as
            amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
            Act of 2002 (transmitted herewith).

31.2        Certification by Principal Financial Officer pursuant to Rule
            13a-15(e) or 15(d)-15(e) of the Securities and Exchange Act of 1934,
            as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
            Act (transmitted herewith).

32          Certification by Principal Executive Officer and Principal Financial
            Officer pursuant to Rule 13a or 15d of the Securities Exchange Act
            of 1934, as amended, as adopted pursuant to section 906 of the
            Sarbanes-Oxley Act of 2002 (transmitted herewith).


*    Indicates a management contract or compensatory plan or arrangement.


                                     Page 38



                               SL Industries, Inc.
         Index to Financial Statements and Financial Statement Schedule



                                                          Page number in
                                                            this report
                                                          --------------
                                                       
Report of Independent Registered Public Accounting Firm          F2
Consolidated Balance Sheets                                      F3
Consolidated Statements of Operations                            F4
Consolidated Statements of Comprehensive Income (Loss)           F4
Consolidated Statements of Shareholders' Equity                  F5
Consolidated Statements of Cash Flows                            F6
Notes to Consolidated Financial Statements                   F7 to F30
Financial Statement Schedule:
II. Valuation and Qualifying Accounts                           F31



                                       F-1


             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------


The Board of Directors and Shareholders
SL Industries, Inc.

     We have audited the accompanying consolidated balance sheets of SL
Industries, Inc. and its subsidiaries (the Company) as of December 31, 2004 and
2003 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
consolidated 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 audits 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 consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SL Industries, Inc. and its subsidiaries at December 31, 2004 and 2003, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.

     Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial schedule
listed in the index to the consolidated financial statements (Schedule II -
Valuation and Qualifying Accounts) is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.



/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 11, 2005


                                       F-2



Item 1. Financial Statements

                               SL INDUSTRIES, INC.
                           CONSOLIDATED BALANCE SHEETS



                                                                                   December 31,
                                                                           ---------------------------
                                                                               2004           2003
                                                                           ------------   ------------
                                                                                    
ASSETS
Current assets:
   Cash and cash equivalents                                               $  2,659,000   $  3,501,000
   Receivables, net                                                          15,734,000     13,064,000
   Note receivable                                                                   --      1,000,000
   Inventories, net                                                          15,839,000     11,009,000
   Prepaid expenses                                                             714,000      1,066,000
   Deferred income taxes, net                                                 3,044,000      3,947,000
                                                                           ------------   ------------
         Total current assets                                                37,990,000     33,587,000
                                                                           ------------   ------------
Property, plant and equipment, net                                            8,509,000      9,547,000
Deferred income taxes, net                                                    3,280,000      2,308,000
Goodwill, net                                                                10,303,000     10,303,000
Other intangible assets, net                                                  1,209,000        980,000
Other assets and deferred charges                                             1,793,000      1,696,000
                                                                           ------------   ------------
         Total assets                                                      $ 63,084,000   $ 58,421,000
                                                                           ============   ============

LIABILITIES
Current liabilities:
   Debt, current portion                                                   $    559,000   $    887,000
   Accounts payable                                                           5,626,000      3,818,000
   Accrued income taxes                                                         962,000      1,203,000
   Accrued liabilities:
      Payroll and related costs                                               6,059,000      5,665,000
      Other                                                                   5,288,000      5,402,000
                                                                           ------------   ------------
         Total current liabilities                                           18,494,000     16,975,000
                                                                           ------------   ------------
Debt, less current portion                                                    1,456,000      2,015,000
Deferred compensation and supplemental retirement benefits                    3,858,000      3,904,000
Other liabilities                                                             1,589,000        946,000
                                                                           ------------   ------------
         Total liabilities                                                 $ 25,397,000   $ 23,840,000
                                                                           ------------   ------------

Commitments and contingencies (Note 12)

SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized, 6,000,000 shares; none issued   $         --   $         --
Common stock, $.20 par value; authorized, 25,000,0000 shares; issued
   8,298,000 shares                                                           1,660,000      1,660,000
Capital in excess of par value                                               39,210,000     38,863,000
Retained earnings                                                            17,690,000      9,018,000
Treasury stock at cost, 2,844,000 and 2,356,000 shares, respectively        (20,873,000)   (14,960,000)
                                                                           ------------   ------------
         Total shareholders' equity                                          37,687,000     34,581,000
                                                                           ------------   ------------
         Total liabilities and shareholders' equity                        $ 63,084,000   $ 58,421,000
                                                                           ============   ============


See accompanying notes to consolidated financial statements.


                                       F-3



                               SL INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,



                                                                 2004           2003           2002
                                                             ------------   ------------   ------------
                                                                                  
Net sales                                                    $118,804,000   $105,284,000   $107,912,000
Cost and expenses:
   Cost of products sold                                       75,582,000     66,010,000     69,371,000
   Engineering and product development                          8,951,000      7,856,000      7,455,000
   Selling, general and administrative                         23,829,000     22,614,000     23,276,000
   Depreciation and amortization                                2,133,000      1,851,000      2,634,000
   Restructuring costs                                                 --             --        230,000
   Asset impairment                                                    --        275,000             --
   Special charges                                                     --             --      1,834,000
                                                             ------------   ------------   ------------
Total cost and expenses                                       110,495,000     98,606,000    104,800,000
                                                             ------------   ------------   ------------
Income from operations                                          8,309,000      6,678,000      3,112,000
                                                             ------------   ------------   ------------
Other income (expense):
   Amortization of deferred financing costs                      (447,000)      (447,000)            --
   Interest income                                                102,000        172,000         25,000
   Interest expense                                              (347,000)      (380,000)    (2,256,000)
                                                             ------------   ------------   ------------
Income from continuing operations before income taxes           7,617,000      6,023,000        881,000
Income tax provision                                            1,316,000      2,281,000         80,000
                                                             ------------   ------------   ------------
Income from continuing operations                               6,301,000      3,742,000        801,000
Income (loss) from discontinued operations (net of tax)         2,371,000     (2,422,000)    (1,271,000)
                                                             ------------   ------------   ------------
Net income (loss)                                            $  8,672,000   $  1,320,000   $   (470,000)
                                                             ============   ============   ============
Basic net income (loss) per common share
   Income from continuing operations                         $       1.10   $       0.63   $       0.14
   Income (loss) from discontinued operations (net of tax)           0.41          (0.41)         (0.22)
                                                             ------------   ------------   ------------
   Net income (loss)                                         $       1.51   $       0.22   $      (0.08)
                                                             ============   ============   ============

Diluted net income (loss) per common share
   Income from continuing operations                         $       1.08   $       0.63   $       0.14
   Income (loss) from discontinued operations (net of tax)           0.40          (0.41)         (0.22)
                                                             ------------   ------------   ------------
   Net income (loss)                                         $       1.48   $       0.22   $      (0.08)
                                                             ============   ============   ============

Shares used in computing basic net income (loss)
   per common share                                             5,760,000      5,917,000      5,867,000
Shares used in computing diluted net income (loss)
   per common share                                             5,871,000      5,956,000      5,867,000


                               SL INDUSTRIES, INC.
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                        FOR THE YEARS ENDED DECEMBER 31,



                                                                  2004           2003            2002
                                                               ----------     ----------      ---------
                                                                                     
Net income (loss)                                              $8,672,000     $1,320,000      $(470,000)
Other comprehensive income:
   Currency translation adjustment (net of tax)                        --             --          5,000
                                                               ----------     ----------      ---------
Comprehensive income (loss)                                    $8,672,000     $1,320,000      $(465,000)
                                                               ==========     ==========      =========


See accompanying notes to consolidated financial statements.


                                       F-4



                               SL INDUSTRIES, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



                                                        Common Stock
                                      -----------------------------------------------                             Accumulated
                                              Issued              Held In Treasury     Capital in                    Other
                                      ---------------------  ------------------------   Excess of     Retained   Comprehensive
                                        Shares     Amount      Shares       Amount      Par Value     Earnings   Income (Loss)
                                      ---------  ----------  ----------  ------------  -----------  -----------  -------------
                                                                                            
BALANCE DECEMBER 31, 2001             8,298,000  $1,660,000  (2,587,000) $(16,373,000) $39,025,000  $ 8,168,000    $  (5,000)
Net loss                                                                                               (470,000)
Other, including exercise of
   employee stock options and
   related income tax benefits                                  171,000     1,089,000     (221,000)
Treasury stock sold                                             188,000     1,191,000       16,000
Treasury stock purchased                                       (170,000)   (1,102,000)
Reclassification of foreign currency
   translation gain realized upon
   the sale of foreign entity                                                                                       (543,000)
Current year translation adjustment                                                                                  548,000
                                      ---------  ----------  ----------  ------------  -----------  -----------    ---------
BALANCE DECEMBER 31, 2002             8,298,000  $1,660,000  (2,398,000) $(15,195,000) $38,820,000  $ 7,698,000    $      --
                                      =========  ==========  ==========  ============  ===========  ===========    =========
Net income                                                                                            1,320,000
Other, including exercise of
   employee stock options and
   related income tax benefits                                   20,000       143,000        6,000
Treasury stock sold                                             171,000     1,070,000       37,000
Treasury stock purchased                                       (149,000)     (978,000)
                                      ---------  ----------  ----------  ------------  -----------  -----------    ---------
BALANCE DECEMBER 31, 2003             8,298,000  $1,660,000  (2,356,000) $(14,960,000) $38,863,000  $ 9,018,000    $      --
                                      =========  ==========  ==========  ============  ===========  ===========    =========
Net income                                                                                            8,672,000
Other, including exercise of
   employee stock options and
   related income tax benefits                                   73,000       497,000      170,000
Treasury stock sold                                              41,000       277,000      177,000
Stock repurchase plan                                          (546,000)   (6,101,000)
Treasury stock purchased                                        (56,000)     (586,000)
                                      ---------  ----------  ----------  ------------  -----------  -----------    ---------
BALANCE DECEMBER 31, 2004             8,298,000  $1,660,000  (2,844,000) $(20,873,000) $39,210,000  $17,690,000    $      --
                                      =========  ==========  ==========  ============  ===========  ===========    =========


See accompanying notes to consolidated financial statements.


                                       F-5



                               SL INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,



                                                                              2004         2003 *          2002
                                                                          -----------   ------------   ------------
                                                                                              
OPERATING ACTIVITIES:
   Income from continuing operations                                      $ 6,301,000   $  3,742,000   $    801,000
   Adjustments to reconcile income from continuing operations
      to net cash provided by operating activities:
      Depreciation                                                          1,848,000      1,654,000      1,997,000
      Amortization                                                            285,000        197,000        637,000
      Amortization of deferred financing costs                                447,000        447,000             --
      Non-cash restructuring charges                                               --             --         35,000
      Asset impairment                                                             --        275,000             --
      Non-cash compensation expense                                           959,000        309,000             --
      Provisions for losses on accounts receivable                            136,000         23,000        109,000
      Other assets                                                           (529,000)      (346,000)       257,000
      Cash surrender value of life insurance policies                              --         21,000        (31,000)
      Deferred compensation and supplemental retirement benefits              348,000        458,000        516,000
      Deferred compensation and supplemental retirement benefit payments     (502,000)      (545,000)    (2,073,000)
      Decrease (increase) in deferred income taxes                           (651,000)     2,122,000        819,000
      Loss on sales of equipment                                                3,000          9,000         43,000
      Changes in operating assets and liabilities, excluding effects of
         business acquisitions and dispositions:
         Accounts receivable                                               (2,714,000)     4,366,000      3,679,000
         Inventories                                                       (4,830,000)     2,711,000      2,763,000
         Prepaid expenses                                                     353,000       (410,000)        54,000
         Accounts payable                                                   1,921,000     (1,508,000)    (2,801,000)
         Other accrued liabilities                                           (137,000)    (2,249,000)       301,000
         Accrued income taxes                                               1,305,000     (1,312,000)     1,668,000
                                                                          -----------   ------------   ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                 $ 4,543,000   $  9,964,000   $  8,774,000
                                                                          -----------   ------------   ------------
INVESTING ACTIVITIES:
   Proceeds from sale of net assets of subsidiaries                         1,000,000      7,600,000             --
   Proceeds from sales of equipment                                             9,000             --        167,000
   Purchases of property, plant and equipment                              (1,642,000)    (1,616,000)    (1,466,000)
   Decrease in notes receivable                                                    --          2,000          1,000
   Proceeds from cash surrender value of life insurance policies                   --             --     10,676,000
                                                                          -----------   ------------   ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                       $  (633,000)  $  5,986,000   $  9,378,000
                                                                          -----------   ------------   ------------

FINANCING ACTIVITIES:
   Change in deferred financing charges                                            --       (201,000)    (1,141,000)
   Net proceeds from Senior Credit Facility                                        --      3,518,000     18,800,000
   Payments to Revolving Credit Facility                                           --    (17,557,000)   (36,903,000)
   Payments of term loans                                                    (887,000)      (616,000)            --
   Proceeds from stock options exercised                                      517,000        149,000        867,000
   Treasury stock (acquired) sold                                          (6,233,000)       129,000        105,000
                                                                          -----------   ------------   ------------
NET CASH USED IN FINANCING ACTIVITIES                                     $(6,603,000)  $(14,578,000)  $(18,272,000)
                                                                          -----------   ------------   ------------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS                      1,851,000     (1,410,000)     1,193,000
                                                                          -----------   ------------   ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         (842,000)       (38,000)     1,073,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                            3,501,000      3,539,000      2,466,000
                                                                          -----------   ------------   ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                $ 2,659,000   $  3,501,000   $  3,539,000
                                                                          ===========   ============   ============


See accompanying notes to consolidated financial statements.

*    Reclassified for comparative purposes.


                                       F-6



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BACKGROUND: SL Industries, Inc. (the "Company"), a New Jersey corporation,
through its subsidiaries, designs, manufactures and markets power electronics,
power motion, power protection equipment, teleprotection and specialized
communication equipment that is used in a variety of medical, aerospace,
computer, datacom, industrial, telecom, transportation and electric power
utility equipment applications. Its products are incorporated into larger
systems to increase operating safety, reliability and efficiency. The Company's
products are largely sold to original equipment manufacturers, the electric
utility industry, and, to a lesser extent, commercial distributors. The
Company's customer base is primarily located in the United States.

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

RECLASSIFICATIONS: Reclassifications, when applicable, are made to the prior
year consolidated financial statements to conform with the current year
presentation.

CASH EQUIVALENTS: The Company considers all highly liquid debt instruments with
an original maturity date of three months or less and investments in money
market accounts to be cash equivalents. At December 31, 2004 and December 31,
2003, cash and cash equivalents are held principally at one financial
institution.

REVENUE RECOGNITION: Revenue is recognized when persuasive evidence of an
arrangement exists, when title and risk of ownership passes, the sales price is
fixed or determined and collectibility is probable. Generally, those criteria
are met at the time the product is shipped. Provisions are made at the time the
related revenue is recognized for product returns, product warranties, rebates,
certain stock scrap programs with distributors and other sales incentives
offered by the Company to its customers. Freight revenues billed to customers
are included in net sales and expenses for shipping products are included in
cost of sales.

ACCOUNTS RECEIVABLE: The Company's accounts receivable primarily consist of
trade receivables and are reported net of allowances for doubtful accounts of
approximately $472,000 and $365,000 for 2004 and 2003, respectively. The
Company's estimate for the allowance for doubtful accounts related to trade
receivables is based on two methods. The amounts calculated from each of these
methods are combined to determine the total amount reserved. First, the Company
evaluates specific accounts where it has information that the customer may have
an inability to meet its financial obligations (bankruptcy, etc.). In these
cases, the Company uses its judgment, based on the best available facts and
circumstances, and records a specific reserve for that customer against amounts
due to reduce the receivable to the amount that is expected to be collected.
These specific reserves are reevaluated and adjusted as additional information
is received that impacts the amount reserved. Second, a general reserve is
established for all customers based on several factors, including historical
write-offs as a percentage of sales and anticipated returns related to customer
receivables. If circumstances change (e.g., higher than expected defaults or an
unexpected material adverse change in a major customer's ability to meet its
financial


                                       F-7



obligation), the Company's estimates of the recoverability of amounts due could
be reduced by a material amount.

INVENTORIES: Inventories are valued at the lower of cost or market. Cost is
primarily determined using the first-in, first-out ("FIFO") method. Cost for
certain inventories is determined using the last-in, first-out ("LIFO") method.
The Company ensures inventory is valued at the lower of cost or market, and
continually reviews the book value of discontinued product lines to determine if
these items are properly valued. The Company identifies these items and assesses
the ability to dispose of them at a price greater than cost. If it is determined
that cost is less than market value, then cost is used for inventory valuation.
If market value is less than cost, then related inventory is set to that value.
If a write down to the current market value is necessary, the market value
cannot be greater than the net realizable value, defined as selling price less
costs to complete and dispose and cannot be lower than the net realizable value
less a normal profit margin. The Company also continually evaluates the
composition of its inventory and identifies slow-moving and excess inventories.
Inventory items identified as slow-moving or excess are evaluated to determine
if reserves are required. If the Company is not able to achieve its expectations
of the net realizable value of the inventory at current value, it would adjust
its reserves accordingly.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried at cost
and include expenditures for new facilities and major renewals and betterments.
Maintenance, repairs and minor renewals are charged to expense as incurred. When
assets are sold or otherwise disposed of, any gain or loss is recognized
currently. Depreciation is provided primarily using the straight-line method
over the estimated useful lives of the assets, which range from 25 to 40 years
for buildings, 3 to 15 years for equipment and other property, and the lease
term for leasehold improvements.

GOODWILL AND OTHER INTANGIBLES: In June 2001, FASB issued Statement of Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"), which requires that goodwill and certain other intangible assets having
indefinite lives will no longer be amortized to earnings, but instead be subject
to periodic testing for impairment. Intangible assets determined to have
definitive lives will continue to be amortized over their estimated useful
lives. Effective January 1, 2002, the Company adopted SFAS No. 142 and
implemented certain provisions, specifically the discontinuation of goodwill
amortization, and implemented the remaining provisions during 2002.

LONG-LIVED ASSETS: As of January 1, 2002, the Company adopted Statement of
Financial Accounting Standard No. 144 ("SFAS No. 144"), "Accounting for the
Impairment or Disposal of Long Lived Assets" ("SFAS No. 144"), which supersedes
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of."
Accordingly, whenever events or circumstances indicate that the carrying amount
of an asset may not be recoverable, the Company assesses the recoverability of
the asset either by estimated cash flows or independent appraisals.

ENVIRONMENTAL EXPENDITURES: Environmental expenditures that relate to current
operations are charged to expense or capitalized, as appropriate. Environmental
expenditures that relate to former business units are reported as part of
discontinued operations. Liabilities are recorded when remedial efforts are
probable and the costs can be reasonably estimated. The liability for
remediation expenditures includes elements of costs such as site investigations,
consultants' fees, feasibility studies, outside contractor expenses and
monitoring expenses. Estimates are not discounted, nor are they reduced by
potential claims for recovery from the Company's insurance carriers. The
liability is periodically reviewed and


                                       F-8



adjusted to reflect current remediation progress, prospective estimates of
required activity and other relevant factors including changes in technology or
regulations.

DEBT ISSUANCE COSTS: Costs incurred in securing long-term debt are deferred and
amortized over the term of the related debt.

PRODUCT WARRANTY COSTS: The Company offers various warranties on its products.
The Company provides for its estimated future warranty obligations in the period
in which the related sale is recognized primarily based on historical
experience. For 2004, 2003 and 2002, these costs were $326,000, $423,000, and
$605,000, respectively.

ADVERTISING COSTS: Advertising costs are expensed as incurred. For 2004, 2003
and 2002, these costs were $268,000, $296,000, and $310,000, respectively.

RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as
incurred. For 2004, 2003 and 2002, these costs were $3,811,000, $2,659,000, and
$2,572,000, respectively.

INCOME TAXES: The Company utilizes the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities. The
Company considers the undistributed earnings of its foreign subsidiaries to be
permanently reinvested. Accordingly, the Company has not provided for any
deferred taxes. As of December 31, 2004, $80,000 of such undistributed earnings
were expected to be permanently reinvested. It is not practicable to estimate
the amount of additional tax that might be payable on this undistributed foreign
income.

FOREIGN CURRENCY CONVERSION: The Company's Mexican subsidiaries' functional
currency is U.S. dollars. Conversion gains or losses resulting from these
foreign currency transactions are included in the accompanying consolidated
statements of operations.

USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant areas which require the use of management estimates relate to
product warranty costs, accrued liabilities related to litigation, allowance for
doubtful accounts, allowance for inventory obsolescence and environmental costs.

NET INCOME (LOSS) PER COMMON SHARE: The Company has presented net income per
common share pursuant to Financial Accounting Standards Board Statement of
Financial Accounting Standard No. 128, "Earnings per Share." Basic net income
per common share is computed by dividing reported net income available to common
shareholders by the weighted average number of shares outstanding for the
period. Diluted net income per common share is computed by dividing reported net
income available to common shareholders by the weighted average shares
outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, which consist of stock options, using the treasury stock method.


                                       F-9



The table below sets forth the computation of basic and diluted net income
(loss) per share:



                                        Income (loss)     Shares    Per share amount
                                        -------------   ---------   ----------------
                                                           
For the Year Ended December 31, 2004:
Basic net income per common share        $8,672,000     5,760,000        $ 1.51
Effect of dilutive securities                    --       111,000         (0.03)
                                         ----------     ---------        ------
Dilutive net income per common share     $8,672,000     5,871,000        $ 1.48

For the Year Ended December 31, 2003:
Basic net income per common share        $1,320,000     5,917,000        $ 0.22
Effect of dilutive securities                    --        39,000            --
                                         ----------     ---------        ------
Dilutive net income per common share     $1,320,000     5,956,000        $ 0.22

For the Year Ended December 31, 2002:
Basic net loss per common share          $ (470,000)    5,867,000        $(0.08)
Effect of dilutive securities                    --            --            --
                                         ----------     ---------        ------
Dilutive net loss per common share       $ (470,000)    5,867,000        $(0.08)
                                         ----------     ---------        ------


For the years ended December 31, 2004 and December 31, 2003, 437,000 and 490,000
stock options were excluded from the dilutive computations because the option
exercise prices were greater than the average market price of the Company's
common stock. For the year ended December 31, 2002, 533,000 stock options were
excluded from the dilutive computations because their effect would have been
anti-dilutive.

STOCK BASED COMPENSATION: In December 2002, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 148, "Accounting for Stock Based
Compensation-Transition and Disclosure" ("SFAS No. 148"), an amendment of SFAS
No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 148
provides alternative methods for a voluntary change to the fair value method of
accounting for stock-based employee compensation and amends the disclosure
requirements of SFAS No. 123. The Company has elected to continue to account for
its stock-based employee compensation plans under Accounting Principals Board
Opinion 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and
related interpretations. The following disclosures are provided in accordance
with SFAS No. 148.

As permitted by the FASB, the Company has elected to follow APB No. 25 and
related interpretations in accounting for its stock option plans. Under APB
Opinion No. 25, compensation expense is measured as the excess, if any, of the
fair value of the Company's common stock at the date of the grant over the
amount a grantee must pay to acquire the stock. The Company's stock option plans
enable the Company to grant options with an exercise price not less than the
fair value of the Company's common stock at the date of the grant. However, the
Company has recognized approximately $809,000 and $231,000 in the years ended
December 31, 2004 and December 31, 2003, respectively, in compensation expense
related to certain stock based compensation arrangements.

The exercise price of all stock options generally equals the market price of the
Company's common stock on the date of grant. Compensation cost has been
recognized for the Company's stock option plans as noted in the table below. Had
compensation cost for the Company's stock option plans been determined based
upon the fair value at the grant date for awards under these plans, consistent
with the


                                      F-10



methodology prescribed under SFAS No. 123, the Company's net income and net
income per common share would have been as follows:



                                                                                           
                                                      Year Ended            Year Ended           Year Ended
                                                   December 31, 2004   December 31, 2003 *   December 31, 2002
                                                   -----------------   -------------------   -----------------
                                                                                    
Net income (loss), as reported                         $8,672,000          $1,320,000           $  (470,000)
Add: Stock-based employee compensation
   expense included in reported net
   income, net of related tax effects                     534,000             186,000                    --
                                                       ----------          ----------           -----------
                                                        9,206,000           1,506,000              (470,000)

Deduct: Total stock-based employee
   compensation expense determined under fair
   value based method for awards granted,
   modified, or settled, net of related tax 
   effects                                               (761,000)           (752,000)             (684,000)
                                                       ----------          ----------           -----------
Pro forma net income (loss)                            $8,445,000          $  754,000           $(1,154,000)
                                                       ==========          ==========           ===========

Earnings (loss) per share:
   Basic - as reported                                 $     1.51          $     0.22           $     (0.08)
   Basic - pro forma                                   $     1.47          $     0.13           $     (0.20)

   Diluted - as reported                               $     1.48          $     0.22           $     (0.08)
   Diluted - pro forma                                 $     1.44          $     0.13           $     (0.20)
                                                       ==========          ==========           ===========


*    Reclassified for comparative purposes.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:



                                                                                                                           
                                                     Year Ended          Year Ended          Year Ended
                                                  December 31, 2004   December 31, 2003   December 31, 2002
                                                  -----------------   -----------------   -----------------                
                                                                                 
Expected dividend yield                                 0.0%                0.0%                0.0%
Expected stock price volatility                       46.73%              66.18%              62.55%
Risk-free interest rate                                2.81%               2.69%               4.28%
Expected life of stock option                       5 years             5 years             5 years
                                                    -------             -------             -------


The fair value of the above stock-based compensation costs was determined using
the Black-Scholes option valuation model. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options,
which have no vesting restrictions, are fully transferable and do not include a
discount for large block trades. In addition, option valuation models require
the input of highly subjective assumptions, including the expected stock price
volatility, expected life of the option and other estimates. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes of the subjective input
assumptions can materially affect the fair value estimate, in the Company's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.


                                      F-11



RECENT ACCOUNTING PRONOUNCEMENTS: In December 2003, the FASB revised Statement
No. 132 "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The FASB's revision of Statement No. 132 requires new annual
disclosures about the types of plan assets, investment strategy, measurement
date, plan obligations and cash flows, as well as the components of the net
periodic benefit cost recognized in interim periods. In addition, companies are
now required to disclose their estimates of contributions to their plans during
the next fiscal year and the components of the fair value of total plan assets
by type (i.e., equity securities, debt securities, real estate and other
assets). The Company adopted the provisions of Statement No. 132 (revised)
during 2004, which did not have an impact on its consolidated financial position
or results of operations.

In the first quarter of 2004, the Company adopted FASB Financial Interpretation
No. 46-R ("FIN 46-R"), "Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51," which replaced FIN 46.
FIN 46-R requires a company to consolidate a variable interest entity ("VIE") if
it is designated as a primary beneficiary of that entity even if the company
does not have a majority voting interest in the entity. A VIE is generally
defined as an entity in which equity investors do not have the characteristics
of a controlling financial interest, or do not have sufficient equity at risk
for the entity to finance its own activities without additional financial
support from other parties, or whose owners lack the risks and rewards of
ownership. The disclosure requirements of FIN 46-R were effective for financial
statements issued after December 31, 2003. The initial recognition provisions of
FIN 46-R relating to VIE's created or obtained prior to February 2003 were to be
implementated no later than the end of the first reporting period that ends
after March 15, 2004. Adoption of FIN 46-R had no effect on the Company's
consolidated financial position or results of operations.

In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R
is a revision of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and its related implementation
guidance. SFAS No. 123R establishes standards for the accounting of transactions
in which an entity exchanges its equity instruments for goods or services. It
also addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
SFAS No. 123R focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. SFAS No.
123R requires a public entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award (with limited exceptions). That cost will be recognized over
the period during which an employee is required to provide service in exchange
for the award. The provisions of SFAS No. 123R are effective for public entities
that do not file as small business issuers as of the beginning of the first
interim or annual reporting period that begins after June 15, 2005. The Company
is currently evaluating the impact of SFAS No. 123R on its financial position
and results of operations. The Company may experience a negative impact on its
financial position and results of operations by the third quarter of 2005. This
negative impact could be the consequence of not recognizing an expense at the
time the Company originally issued employee stock options.

NOTE 2. DISCONTINUED OPERATIONS

SL WABER - DISCONTINUED OPERATIONS

Effective August 27, 2001, substantially all of the assets of SL Waber, Inc.
("SL Waber") and the stock of Waber de Mexico S.A. de C.V. were sold for
approximately $1,053,000. As part of this transaction, the purchaser acquired
the rights to the SL Waber name and assumed certain liabilities and obligations
of SL Waber. Subsequent to the sale, the Company changed the name of SL Waber to
SLW Holdings, Inc. ("SLW Holdings"). The net income or losses of this subsidiary
are included in the consolidated statements of operations under discontinued
operations for all periods presented. There was no activity from operations of
SLW Holdings during the fourth quarter of 2001 and thereafter.

ELEKTRO-METALL EXPORT GMBH - DISCONTINUED OPERATIONS

On January 6, 2003, the Company sold its wholly-owned, indirect German
subsidiary, Elektro-Metall Export GmbH ("EME"). EME is a producer of electronic
actuation devices and cable harness systems sold to original equipment
manufacturers in the aerospace and automotive industries. Its operations are
located in Ingolstadt, Germany and Paks, Hungary. In consideration for 100% of
the issued and outstanding capital stock of EME, the purchaser paid $8,000,000,
consisting of cash of $4,000,000 paid at closing and $4,000,000 of purchaser
notes. In addition, EME made a distribution of $2,000,000 to the Company prior
to closing. The purchaser notes were comprised of a $3,000,000 secured note that
bore interest at the prime rate plus 2%, which was paid on March 14, 2003, and a
$1,000,000 unsecured note that bore interest at an annual rate of 12%, which was
paid on April 2, 2004.

In December 2002, the Board of Directors authorized the sale of EME, which was a
separate reportable segment of the Company. EME is distinguishable as a
component of the Company and met the criteria as held for sale under SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."


                                      F-12



Accordingly, related operating results of EME have been reported as discontinued
operations for the year ended December 31, 2002. At December 31, 2002, the
Company recorded a provision of $1,631,000 ($0.28 per share), net of related
income taxes, to reduce the carrying value of EME to its fair value less costs
to dispose.

Revenue and net income before income taxes from the discontinued operations of
EME (exclusive of the impairment provision) were as follows:



                                    Year Ended 
                                 December 31, 2002
                                 -----------------
                                   (in thousands)
                              
Revenues                              $27,658
Net income before income taxes        $ 3,049
                                      =======  


SL SURFACE TECHNOLOGIES, INC. - DISCONTINUED OPERATIONS

During the third quarter of 2003, the Company completed a strategic review of
its subsidiary, SL Surface Technologies, Inc. ("SurfTech"). As a result of that
review, an impairment charge of $703,000 was recorded during the quarter ending
September 30, 2003. Included in the $703,000 is a charge of $275,000, which was
recorded against the carrying value of the real property where SurfTech
conducted operations, as determined by an independent third party appraiser. An
impairment charge of $428,000 was also recorded during that quarter against
certain machinery and equipment being utilized by SurfTech.

On November 24, 2003, the Company sold the operating assets of SurfTech. The
sale included current assets and equipment used by SurfTech. The purchaser paid
$600,000 in cash, plus the assumption of certain liabilities. The Company
continues to own the land and building on which SurfTech's operations were
conducted, and has entered into a ten-year lease with the buyer. As a result of
the sale, the Company recorded an after tax loss of $442,000, which included
severance, closing costs and a required contribution to a union pension plan
discussed more fully below. In addition, as a result of the sale, the Company
reclassified the $428,000 asset impairment charge described above as part of
discontinued operations.

SurfTech had made contributions, based on rates per hour, as specified in two
union agreements, to two union-administered defined benefit multi-employer
pension plans. Under the multi-employer Pension Plan Amendments Act of 1980, an
employer is liable upon withdrawal from or termination of a multi-employer plan
for its proportionate share of the plan's unfunded vested benefits liability.
During 2003 the Company withdrew from both plans and recorded a total charge of
$684,000 regarding the Company's withdrawal from the two plans.


                                      F-13



Revenue and net income before income taxes from the discontinued operations of
SurfTech (exclusive of the loss on the sale of net assets) were as follows:



                                          Years Ended December 31,
                                          ------------------------
                                               2003      2002
                                             -------   -------
                                               (in thousands)
                                                 
Revenues                                     $ 1,840   $ 2,237
Net loss before income taxes                 $(2,941)  $(1,994)
                                             =======   =======


NOTE 3. INCOME TAXES

Income tax provision (benefit) for the years ended December 31, 2004, 2003, and
2002 is as follows:



                                          Years Ended December 31,
                                          ------------------------
                                            2004      2003    2002
                                           ------   -------   ----
                                                (in thousands)
                                                     
Income tax from continuing operations      $1,316   $ 2,281   $ 80
Income tax from discontinued operations       892    (1,097)   113
                                           ------   -------   ----
                                           $2,208   $ 1,184   $193
                                           ======   =======   ====


Income from continuing operations before provision for income taxes consists of
the following:



                                          Years Ended December 31,
                                          ------------------------
                                            2004     2003     2002
                                           ------   ------    ----
                                               (in thousands) 
                                                     
U.S                                        $7,504   $5,724    $407
Non-U.S.                                      113      299     474
                                           ------   ------    ----
                                           $7,617   $6,023    $881
                                           ======   ======    ====


The provision for income taxes from continuing operations consists of the
following:



                                          Years Ended December 31,
                                          ------------------------
                                           2004     2003      2002
                                          ------   ------    -----
                                               (in thousands)
                                                    
Current:
   Federal                                $1,367   $   32    $(691)
   International                             110      144      283
   State                                     (24)     158       30

Deferred:
   Federal                                    (5)   1,576      567
   International                              --       --       --
   State                                    (132)     371     (109)
                                          ------   ------    -----
                                          $1,316   $2,281    $  80
                                          ======   ======    =====


The provision for income taxes related to discontinued operations for 2004 was
$892,000. Income tax benefit related to discontinued operations for 2003 was
$1,097,000, and a provision of $113,000 was recorded for 2002.


                                      F-14



Significant components of the Company's deferred tax assets and liabilities as
of December 31, 2004 and December 31, 2003 are as follows:



                                                                 December 31,   December 31,
                                                                     2004          2003 *
                                                                 ------------   ------------
                                                                        (in thousands)
                                                                          
Deferred Tax Assets:
   Deferred compensation                                            $ 1,646        $ 1,836
   Inventory valuation                                                  759            925
   Tax loss carryforwards                                             1,837          2,035
   Foreign tax credit carryforwards                                     564          1,167
   R&D tax credit carryforwards                                       2,856            750
   Other                                                              1,364            964
                                                                    -------        -------
                                                                      9,026          7,677

   Less valuation allowances                                         (3,267)        (2,016)
                                                                    -------        -------
                                                                      5,759          5,661
Deferred Tax Liabilities:
   Accelerated depreciation and amortization                            663            803
                                                                    -------        -------
                                                                      5,096          4,858
                                                                    -------        -------
Assets and Liabilities Related to Discontinued Operations, net        1,228          1,397
                                                                    -------        -------
                                                                    $ 6,324        $ 6,255
                                                                    =======        =======


*    Reclassified for comparative purposes.

As of December 31, 2004 and December 31, 2003, the Company's gross foreign tax
credits totaled approximately $564,000 and $1,167,000, respectively. These
credits can be carried forward for ten years and expire between 2009 and 2014.

During the year, the Company recorded the benefits from research and development
tax credits primarily related to prior years. As of December 31, 2004, the
Company's research and development tax credits totaled approximately $2,856,000.
Of these credits approximately $2,669,000 can be carried forward for fifteen
years and expire between 2013 and 2019, while $187,000 will carry over
indefinitely.

The Company has assessed its past earnings history and trends, sales backlog,
budgeted sales, and expiration dates of tax carryforwards and has determined
that it is more likely than not that the $6,324,000 of the net deferred tax
assets as of December 31, 2004 will be realized. The Company has an allowance of
$3,267,000 provided against the gross deferred tax asset due to uncertainties
related to the utilization of some deferred tax assets, primarily consisting of
certain research and development tax credits, state tax loss carryforwards and
foreign tax credits.


                                      F-15



The following is a reconciliation of income tax expense (benefit) related to
continuing operations at the applicable federal statutory rate and the effective
rates:



                                                Years Ended December 31,
                                                ------------------------
                                                   2004   2003   2002
                                                   ----   ----   ----
                                                        
Statutory rate                                      34%    34%    34%
Tax rate differential on foreign sales
corporation/extraterritorial income exclusion       (2)    (2)   (15)
benefit earnings
International rate differences                       1      1      8
State income taxes, net of federal income tax        5      5     --
Foreign tax credits                                 (2)    --     --
Research and development credits                   (17)    --     --
Other                                               (2)    --    (18)
                                                   ---    ---    ---
                                                    17%    38%     9%
                                                   ===    ===    ===


NOTE 4. RECEIVABLES

Receivables consist of the following:



                                        December 31,   December 31,
                                            2004           2003
                                        ------------   ------------
                                              (in thousands)
                                                 
Trade receivables                         $15,771         $12,656
Less allowances for doubtful accounts        (472)           (365)
                                          -------         -------
                                           15,299          12,291
Recoverable income taxes                       82             406
Other                                         353             367
                                          -------         -------
                                          $15,734         $13,064
                                          =======         =======


NOTE 5. CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high credit
quality financial institutions. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of customers comprising
the Company's customer base, and their dispersion across many industries and
geographic regions.

NOTE 6. INVENTORIES

Inventories consist of the following:



                                        December 31,   December 31,
                                            2004           2003
                                        ------------   ------------
                                               (in thousands)
                                                 
Raw materials                             $ 9,669         $ 8,384
Work in process                             5,000           3,769
Finished goods                              3,633           1,494
                                          -------         -------
                                           18,302          13,647
Less allowances                            (2,463)         (2,638)
                                          -------         -------
                                          $15,839         $11,009
                                          =======         =======



                                      F-16



The above includes certain inventories, which are valued using the LIFO method,
which aggregated $3,832,000 and $3,307,000 as of December 31, 2004 and December
31, 2003, respectively. The excess of FIFO cost over LIFO cost as of December
31, 2004 and December 31, 2003 was approximately $565,000 and $457,000,
respectively.

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:



                                       December 31,   December 31,
                                           2004           2003
                                       ------------   ------------
                                              (in thousands)
                                                
Land                                     $  1,170       $  1,149
Buildings and leasehold improvements        6,834          6,772
Equipment and other property               17,013         15,194
                                         --------       --------
                                           25,017         23,115
Less accumulated depreciation             (16,508)       (13,568)
                                         --------       --------
                                         $  8,509       $  9,547
                                         ========       ========


NOTE 8. GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:



                                      December 31, 2004                    December 31, 2003
                             ----------------------------------   ----------------------------------
                              Gross     Accumulated                Gross     Accumulated
                              Value    Amortization   Net Value    Value    Amortization   Net Value
                             -------   ------------   ---------   -------   ------------   ---------
                                                          (in thousands)
                                                                         
Goodwill                     $12,167      $1,864       $10,303    $12,167      $1,864       $10,303
                             -------      ------       -------    -------      ------       -------

Patents                          946         666           280        946         594           352
Covenant not to compete          110         110            --        110         110            --
Trademarks                       922         350           572        922         319           603
Licensing fees                   355          18           337         --          --            --
Other                            437         417            20        501         476            25
                             -------      ------       -------    -------      ------       -------
   Other intangible assets     2,770       1,561         1,209      2,479       1,499           980
                             -------      ------       -------    -------      ------       -------
                             $14,937      $3,425       $11,512    $14,646      $3,363       $11,283
                             =======      ======       =======    =======      ======       =======


The Company conducted its initial test for impairment of goodwill and other
intangible assets in the second quarter of 2002. The Company allocated its
adjusted goodwill balance to its reporting units and conducted the transitional
impairment tests required by SFAS No. 142. The fair values of the reporting
units were estimated using a combination of the expected present values of
future cash flows and an assessment of comparable market values. No impairment
charges were recorded as a result of the initial impairment test. The Company
also tested goodwill for impairment in the fourth quarter of 2002 and recorded a
charge to reduce goodwill in the amount of $556,000 related to SurfTech. This
charge has been reclassified to discontinued operations for fiscal 2002. There
were no impairment charges related to goodwill and intangible assets recorded
during 2004 and 2003.

The other intangible assets that have definite lives are all amortizable and
have original estimated useful lives as follows: patents are amortized over
approximately 13 years and licensing fees over approximately 10 years.
Amortization expense for intangible assets subject to amortization in each of


                                      F-17



the next five fiscal years is estimated to be $113,000 for the next three years,
$68,000 in the fourth year and $41,000 in the fifth year.

Amortization expense related to intangible assets for 2004, 2003, and 2002 was
$126,000, $113,000 and $431,000, respectively. Intangible assets subject to 
amortization have a weighted average life of approximately 12 years.

NOTE 9. DEBT

Debt consists of the following:



                           December 31,   December 31,
                               2004           2003
                           ------------   ------------
                                  (in thousands)
                                    
Revolving line of credit      $   --         $  327
Term Loan A                    1,600          1,992
Term Loan B                      415            583
                              ------         ------
                               2,015          2,902

Less current portion            (559)          (887)
                              ------         ------
Long term debt                $1,456         $2,015
                              ======         ======


On January 6, 2003, the Company entered into the Senior Credit Facility with
LaSalle Business Credit LLC. The Senior Credit Facility provides for a revolving
loan and two term loans, up to a maximum indebtedness of $20,000,000. The
revolving loan of up to $16,810,000 is based upon eligible receivables and
inventory and an original overadvance amount of $1,500,000. The overadvance
amount was fully paid down on April 7, 2004. The two term loans of $2,350,000
and $840,000 are paid down over a three-year term. The Senior Credit Facility
restricts investments, acquisitions, capital expenditures and dividends. The
Senior Credit Facility contains financial covenants relating to minimum levels
of net worth, fixed charge coverages, EBITDA levels and maximum levels of
capital expenditures, as defined. The Senior Credit Facility bears interest
ranging from the prime rate plus .5% to the prime rate plus 2%. The Senior
Credit Facility is secured by all of the Company's assets. The Senior Credit
Facility also provides for certain reserves for outstanding letters of credit
and other contingencies, which have reduced the Company's availability under the
revolving loan portion of the Senior Credit Facility. At December 31, 2004, the
outstanding term loan balances were $1,600,000 and $415,000, or a total of
$2,015,000. Availability under the Senior Credit Facility at December 31, 2004
was $12,273,000. The Company is in discussions with several commercial banks to
refinance the Senior Credit Facility on or before its expiration date which is
January 6, 2006.


                                      F-18



The schedule of payments on long-term debt is as follows:



                       December 31, 2004
                       -----------------
                         (in thousands)
                    
2005                         $  559
2006                          1,456
2007                             --
                             ------
                             $2,015
Less-current portion            559
                             ------
Total long-term debt         $1,456
                             ======


The weighted average interest rate on borrowings during 2004 and 2003 was 4.99%
and 5.09%, respectively.

NOTE 10. ACCRUED LIABILITIES - OTHER

Accrued liabilities - other consist of the following:



                                                 December 31,   December 31,
                                                     2004          2003 *
                                                 ------------   ------------
                                                        (in thousands)
                                                          
Taxes (other than income) and insurance             $  805         $1,062
Commissions                                            482            484
Accrued litigation and legal fees                    1,190          1,109
Other professional fees                                689            269
Environmental                                        1,275            957
Warranty                                               921            915
Other                                                  915          1,206
Reclassified to long-term liabilities                 (989)          (600)
                                                    ------         ------
                                                    $5,288         $5,402
                                                    ======         ======


*    Reclassified for comparative purposes.

Included in the environmental accrual are estimates for all known costs believed
to be probable for sites, which the Company currently operates or had operated
at one time and which are explained more fully under Environmental (Note 12).

A summary of the Company's warranty reserve for 2004 and 2003 are as follows:



                                                 December 31,   December 31,
                                                     2004          2003 *
                                                 ------------   ------------
                                                        (in thousands)
                                                          
Liability, beginning of year                         $ 915          $ 897
Expense for new warranties issued                      330            398
Expense related to accrual revisions for prior
   year warranties                                      (4)            25
Warranty claims                                       (320)          (405)
                                                     -----          -----
Liability, end of year                               $ 921          $ 915
                                                     =====          =====


*    Reclassified for comparative purposes.


                                      F-19



NOTE 11. RETIREMENT PLANS AND DEFERRED COMPENSATION

The Company maintains three noncontributory, defined contribution pension plans
covering all of its full-time, US employees. The Company's contributions to
these plans are based on a percentage of employee contributions and/or plan year
gross wages, as defined. Teal, SL-MTI, Condor and the Corporate office provide
contributions to their plans based of a percentage of employee contributions.
RFL, SL-MTI, Condor and the Corporate office also provide profit sharing
contributions annually, based on plan year gross wages. Costs incurred under
these plans during 2004, 2003 and 2002 amounted to approximately $976,000,
$1,131,000 and $1,232,000, respectively.

The Company has agreements with certain active and retired directors, officers
and key employees providing for supplemental retirement benefits. The liability
for supplemental retirement benefits is based on the most recent mortality
tables available and discount rates of 6% to 12%. The amount charged to income
in connection with these agreements amounted to $358,000, $411,000 and $334,000,
for 2004, 2003 and 2002, respectively.

The Company is the owner and beneficiary of life insurance policies on the lives
of some of the participants having a deferred compensation or supplemental
retirement agreement. As of December 31, 2004, the aggregate death benefit
totaled $570,000, with the corresponding cash surrender value of all policies
totaling $271,000.

As of December 31, 2001, life insurance policies with a cash surrender value of
approximately $11,109,000 were surrendered to the life insurance company in
exchange for the cash proceeds from the build up of cash surrender value in the
policies. In December 2001 and January 2002, the Company received approximately
$880,000 and $10,229,000, respectively, from the surrender of these policies.
These funds were used to pay down bank debt.

As of December 31, 2004, certain agreements may restrict the Company from
utilizing cash surrender value of certain life insurance policies totaling
approximately $271,000 for purposes other than the satisfaction of the specific
underlying deferred compensation agreements, if benefits are not paid by the
Company. The Company nets the dividends realized from the life insurance
policies with premium expenses. Net expenses recorded in connection with the
policies amounted to $9,000, $0 and $18,000 for 2004, 2003 and 2002,
respectively.

NOTE 12. COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities, equipment and vehicles from third parties
that expire through 2007. The minimum rental commitments as of December 31, 2004
are as follows:



                          Operating   Capital          
                          ---------   -------        
                             (in thousands)
                                          
2005                        $1,249      $ 80          
2006                           802        66           
2007                           194        14          
2008                            --        --          
2009                            --        --           
Thereafter                      --        --           
                            ------      ----           
Total Minimum Payments      $2,245      $160           
                            ------      ----          
Less: Interest                           (27)           
                                        ----          
Total Principal Payable                 $133            
                                        ====



                                      F-20



For 2004, 2003 and 2002, rental expense applicable to continuing operations
aggregated approximately $1,393,000, $1,394,000, and $1,027,000, respectively.

LETTERS OF CREDIT: As of December 31, 2004 and 2003, the Company was
contingently liable for $605,000 and $604,000, respectively, under an
outstanding letter of credit issued for casualty insurance requirements.

LITIGATION: In the ordinary course of its business, the Company is subject to
loss contingencies pursuant to foreign and domestic federal, state and local
governmental laws and regulations and is also party to certain legal actions,
which may occur in the normal operations of the Company's business. It is
management's opinion that the impact of these legal actions will not have a
material adverse effect on the consolidated financial position or results of
operations of the Company.

The Company's subsidiary, SL Montevideo Technology, Inc. ("SL-MTI"), defended a
cause of action, brought against it in the fall of 2000, in the federal district
court for the western district of Michigan. The lawsuit was filed by a customer,
Eaton Aerospace, Inc. ("Eaton"), alleging breach of contract and warranty in the
defective design and manufacture of a high precision motor and demanding
compensatory damages of approximately $3,900,000. On November 7, 2002, after a
full trial of the facts, a jury awarded Eaton damages of $650,000, which when
combined with pre-trial interest brings the total claim to $780,000 which is
fully reserved. Eaton is appealing the decision.

The Company is the subject of certain lawsuits and actions relating to
environmental issues, including an administrative action in connection with a
chrome plating facility in Pennsauken, New Jersey formerly operated by SurfTech
(the "SurfTech Site") which could subject the Company to, among other things,
$9,266,000 in collective reimbursements (with other parties) to the New Jersey
Department of Environmental Protection (the "NJDEP"). The Company believes that
it has significant defenses against all or any part of the claim and that any
material impact is unlikely.

On June 12, 2002, the Company and SurfTech were served with notice of class
action complaint filed in Superior Court of New Jersey for Camden County. The
Company and SurfTech are currently two of approximately 39 defendants in this
action. The complaint alleges, among other things, that plaintiffs suffered
personal injuries as a result of consuming water distributed from the Puchack
Wellfield in Pennsauken, New Jersey (which supplies Camden, New Jersey).

This case arises from the same factual circumstances as current administrative
actions involving the Puchack Wellfield, to which the Company is a party. The
administrative actions and the class action lawsuit both allege that SurfTech
and other defendants contaminated ground water through the disposal of hazardous
substances at the SurfTech site.

As with the administrative actions, the Company believes it has significant
defenses against the class action plaintiff's claims and intends to pursue them
vigorously. Technical data generated as part of remedial activities at the
SurfTech Site have not established offsite migration of contaminants. Based on
this and other technical factors, the Company has been advised by its outside
counsel that it has a strong defense against the claims alleged in the class
action plaintiffs' complaint, as well as the environmental administrative
actions.

It is management's opinion that the impact of legal actions brought against the
Company and its operations will not have a material adverse effect on its
financial position or results of operations.


                                      F-21



However, the ultimate outcome of these matters, as with litigation generally, is
inherently uncertain, and it is possible that some of these matters may be
resolved adversely to the Company. The adverse resolution of any one or more of
these matters could have a material adverse effect on the business, operating
results, financial condition or cash flows of the Company.

ENVIRONMENTAL: Loss contingencies include potential obligations to investigate
and eliminate or mitigate the effects on the environment of the disposal or
release of certain chemical substances at various sites, such as Superfund sites
and other facilities, whether or not they are currently in operation. The
Company is currently participating in environmental assessments and cleanups at
a number of sites under these laws and may in the future be involved in
additional environmental assessments and cleanups. Based upon investigations
completed by the Company and its independent engineering consulting firms to
date, management has provided an estimated accrual for all known costs believed
to be probable in the amount of $1,275,000. Of this amount the Company expects
to spend approximately $286,000 related to environmental matters in 2005.
However, it is in the nature of environmental contingencies that other
circumstances might arise, the costs of which are indeterminable at this time
due to such factors as changing government regulations and stricter standards,
the unknown magnitude of defense and cleanup costs, the unknown timing and
extent of the remedial actions that may be required, the determination of the
Company's liability in proportion to other responsible parties, and the extent,
if any, to which such costs are recoverable from other parties or from
insurance. Although these contingencies could result in additional expenses or
judgments, or off-sets thereto, at present such expenses or judgments are not
expected to have a material effect on the consolidated financial position or
results of operations of the Company. Most of the Company's environmental costs
relate to discontinued operations and all such appropriate costs have been
recorded in discontinued operations.

The Company has reported a ground water contamination plume on its property in
Camden, New Jersey. In January 2003, the Company submitted to the NJDEP a plan
to remediate the site, which is currently under review. Based upon the
preliminary evidence, the Company was advised that the cost to remediate the
site could amount to $500,000. The Company recorded a provision for this amount
during the first quarter of 2002, which is now recorded as part of discontinued
operations.

The Company has reported soil and groundwater contamination on SL-MTI's property
in Montevideo, Minnesota. SL-MTI has conducted analysis of the contamination and
performed remediation at the site. Further remediation efforts will be required
and the Company is engaged in discussions with the Minnesota Pollution Control
Agency to develop a remediation plan. Based on current information, the Company
believes it will incur remediation costs at this site of $268,000, which has
been accrued.

The Company filed claims with several of its insurers seeking reimbursement for
past and future environmental costs. In settlement of its claims, the Company
received aggregate cash payments of $2,800,000 prior to fiscal 2001, and
commitments from three insurers to pay for a portion of environmental costs
associated with the SurfTech site of 15% of costs up to $300,000, 15% of costs
up to $150,000 and 20% of costs up to $400,000, respectively. During 2004, the
Company billed these three insurers a total of $654,000 for their contingent
commitments through 2004. These billings are recorded in discontinued
operations. As of December 31, 2004 and 2003, the remaining environmental
accruals of $1,275,000 and $957,000, respectively, have been included in
"Accrued Liabilities - Other" (Note 10).


                                      F-22



EMPLOYMENT AGREEMENTS: Following election of five new directors in 2002, the
Company made payments to certain executive officers under change-of-control
agreements totaling approximately $1,480,000, which is reported as a component
of special charges in the statement of operations in 2002.

The Company also entered into severance agreements with certain key employees in
2001 that provide for one-time payments in the event of a change in control, as
defined, if the employee is terminated within 12 months of any such change of
control. These payments range from three to 24 months of the employee's base
salary as of the termination date, as defined. If a triggering event had taken
place in 2004 and if these employees had been terminated during the year, the
payments would have aggregated approximately $3,400,000 under the change of
control agreements.

NOTE 13. STOCK OPTIONS AND CAPITAL STOCK

At the Company's 1993 Annual Meeting, the shareholders approved a Nonemployee
Director Nonqualified Stock Option Plan (the "Director Plan"), which was
effective June 1, 1993. The Director Plan provides for the granting of
nonqualified options to purchase up to 250,000 shares of the Company's common
stock to non-employee directors of the Company in lieu of paying quarterly
retainer fees and regular quarterly meeting attendance fees, when elected. The
Director Plan enables the Company to grant options, with an exercise price per
share not less than fair market value of the Company's common stock on the date
of grant, which are exercisable at any time. Each option granted under the
Director Plan expires no later than ten years from date of grant and no options
can be granted under the Director Plan after its May 31, 2003 expiration date.
Information for 2004, 2003 and 2002 with respect to the Director Plan is as
follows:



                                                                                        Weighted
                                                                                    Average Exercise
                                                      Shares      Option Price            Price
                                                      ------   ------------------   ----------------
                                                          (in thousands, except for option price)
                                                                           
Outstanding and exercisable as of December 31, 2001    104     $3.5625 to $14.625        $ 9.98
Granted                                                  5       $7.15 to $8.20          $ 7.70
Cancelled                                              (42)     $6.80 to $14.625         $12.00
                                                       ---     ------------------        ------
Outstanding and exercisable as of December 31, 2002     67     $3.5625 to $14.625        $ 8.57
Granted                                                 91       $6.00 to $6.00          $ 6.00
Exercised                                              (18)      $6.00 to $6.00          $ 6.00
                                                       ---     ------------------        ------
Outstanding and exercisable as of December 31, 2003    140     $3.5625 to $14.625        $ 7.23
Exercised                                              (32)     $3.5625 to $6.00         $ 5.41
Cancelled                                               (2)      $7.27 to $7.31          $ 7.30
                                                       ---     ------------------        ------
Outstanding and exercisable as of December 31, 2004    106      $4.75 to $14.625         $ 7.31
                                                       ===     ==================        ======


As of December 31, 2004, there are no shares available for grant.

At the Company's 1991 Annual Meeting, the shareholders approved the adoption of
a Long Term Incentive Plan (the "1991 Plan"), which provided for the granting of
options to officers and key employees of the Company to purchase up to 500,000
shares of the Company's common stock. At the 1995 Annual Meeting, the
shareholders approved an amendment to increase the number of shares subject to
options under the 1991 Plan from 500,000 to 922,650. At the 1998 Annual Meeting,
the shareholders approved an amendment to increase the number of shares subject
to options under the 1991 Plan from 922,650 to 1,522,650. The 1991 Plan enables
the Company to grant either nonqualified options, with an exercise price per
share established by the Board's Compensation Committee, or incentive stock
options, with an exercise price per share not less than the fair market value of
the Company's common stock on the date of grant, which are exercisable at any
time. Each option granted


                                      F-23



under the 1991 Plan expires no later than ten years from date of grant, and no
future options can be granted under the 1991 Plan as a result of its expiration
on September 25, 2001.

Information for 2004, 2003, and 2002 with respect to the 1991 Plan is as
follows:



                                                                               Weighted
                                           Shares          Option Price     Average Price
                                           ------        ----------------   -------------
                                               (in tousands, except for option price)
                                                                   
Outstanding as of December 31, 2001        1,056         $3.25 to $13.50        $10.08
Exercised                                    (63)         $7.55 to $7.85        $ 4.92
Cancelled                                   (252)        $3.50 to $13.50        $10.39
                                           -----         ----------------       ------
Outstanding as of December 31, 2002          741         $3.25 to $13.50        $10.37
Exercised                                    (10)         $5.75 to $5.75        $ 5.75
Cancelled                                    (59)        $3.25 to $13.50        $ 8.24
                                           -----         ----------------       ------
Outstanding as of December 31, 2003          672         $3.50 to $13.50        $10.62
Exercised                                    (33)        $5.75 to $12.175       $ 7.04
Cancelled                                    (39)        $3.50 to $13.50        $ 9.66
                                           -----         ----------------       ------
Outstanding as of December 31, 2004          600         $5.75 to $13.50        $10.84
                                           =====         ================       ======


The number of shares exercisable as of December 31, 2004, was 565,000. There
were no shares available for grant as of December 31, 2004.

Transactions from December 31, 2001 through December 31, 2004, under the above
plans, were as follows:



                                                                                              Weighted
                                        Number of                                           Average Life
                                          Shares          Option Price        Weighted        Remaining
                                      (in thousands)        per Share       Average Price      (years)
                                      --------------   ------------------   -------------   ------------
                                                                                
Outstanding as of December 31, 2001        1,268        $3.25 to $14.625       $  9.56          7.98
Granted                                        5         $7.15 to $8.20        $  7.70
Exercised                                   (171)       $3.25 to $6.875        $  4.42
Cancelled                                   (294)       $3.50 to $14.625       $10.519
                                           -----       ------------------      -------          ----
Outstanding as of December 31, 2002          808        $3.25 to $14.625       $10.218          7.25
                                           -----       ------------------      -------          ----
Granted                                       91         $6.00 to $6.00        $  6.00
Exercised                                    (28)        $5.75 to $6.00        $  5.91
Cancelled                                    (59)       $3.25 to $13.50        $  8.24
                                           -----       ------------------      -------          ----
Outstanding as of December 31, 2003          812        $3.50 to $14.625       $10.037          6.44
                                           -----       ------------------      -------          ----
Exercised                                    (65)      $3.5625 to $12.175      $  6.24
Cancelled                                    (41)       $3.50 to $13.50        $  9.57
                                           -----       ------------------      -------          ----
Outstanding as of December 31, 2004          706        $4.75 to 14.625        $10.154          5.52
                                           -----       ------------------      -------          ----
Exercisable as of December 31, 2004          671        $4.75 to 14.625        $10.053
                                           =====       ==================      =======



                                      F-24



The following tables segregate the outstanding options and exercisable options
as of December 31, 2004, into five ranges:



Options Outstanding   Range of Option Prices     Weighted      Weighted Average Life Remaining
  (in thousands)             per Share         Average Price               (years)
-------------------   ----------------------   -------------   -------------------------------
                                                      
        173               $4.75 to $6.00          $ 5.837                   7.13
        183               $6.80 to $11.75         $10.527                   3.76
         44              $12.00 to $12.156        $12.007                   5.52
        174             $12.175 to $12.175        $12.175                   6.38
        132              $12.25 to $14.625        $13.232                   4.29
        ---
        706
        ===             ==================        =======                   ====





Options Exercisable   Range of Option Prices      Weighted
  (in thousands)             per Share         Average Price
-------------------   ----------------------   -------------
                                         
        173               $4.75 to $6.00          $ 5.837
        183               $6.80 to $11.75         $10.527
         44              $12.00 to $12.156        $12.007
        139             $12.175 to $12.175        $12.175
        132              $12.25 to $14.625        $13.232
        ---
        671
        ===             ==================        =======


NOTE 14. CASH FLOW INFORMATION

Supplemental disclosures of cash flow information:



                    Years Ended December 31,
                    ------------------------
                      2004    2003     2002
                     ------   ----   ------
                         (in thousands)
                            
Interest paid        $  286   $321   $2,640
Income taxes paid    $2,577   $407   $  379
                     ======   ====   ======


On November 24, 2003, the Company sold substantially all the assets of SurfTech.
In conjunction with this sale, the Company received $600,000 in cash and
deconsolidated the net book value of assets sold of $782,000.

On January 6, 2003, the Company sold its wholly owned German subsidiary EME. In
conjunction with this sale, the Company received $7,000,000 in cash in 2003 and
deconsolidated the net book value of assets of $9,686,000. On April 2, 2004 the
Company received $1,000,000 as final cash payment from the sale of EME.

NOTE 15. INDUSTRY SEGMENTS

The Company currently operates under four business segments: Condor, Teal,
SL-MTI, and RFL. In the second quarter of 2003, management decided to combine
Condor and Teal into one business unit classified as the Power Electronics
Group. Accordingly, for the years ended December 31, 2004, 2003 and 2002, the
Company's reportable segments consisted of Condor, Teal (The Power Electronics
Group), SL-MTI, and RFL.

At December 31, 2002, the Company was comprised of five operating business
units. With the sale of EME on January 6, 2003, the Company has classified this
operating segment as discontinued for all periods presented. On November 24,
2003 the Company sold the operating assets of SurfTech,


                                      F-25



accordingly the Company has classified this operating segment as discontinued
for all periods presented. Condor produces a wide range of standard and custom
power supply products that convert AC or DC power to direct electrical current
to be used in customers' end products. Power supplies closely regulate and
monitor power outputs, using patented filter and other technologies, resulting
in little or no electrical interference. Teal is a leader in the design and
manufacture of customized power conditioning and power distribution units. Teal
products are developed and manufactured for custom electrical subsystems for
original equipment manufacturers of semiconductor, medical imaging, graphics,
and telecommunications systems. SL-MTI is a technological leader in the design
and manufacture of intelligent, high power density precision motors. New motor
and motion controls are used in numerous applications, including aerospace,
medical, and industrial products. RFL designs and manufactures teleprotection
products/systems that are used to protect utility transmission lines and
apparatus by isolating faulty transmission lines from a transmission grid. RFL
also provides customer service and maintenance for all electric utility
equipment protection systems. The Other segment includes corporate related
items, financing activities and other costs not allocated to reportable
segments, which includes but not limited to certain legal, litigation and public
reporting charges and the results of insignificant operations. The accounting
policies of these business units are the same as those described in the summary
of significant accounting policies (see Note 1 for additional information).

Business segment operations are conducted through domestic subsidiaries. For all
periods presented, sales between business segments were not material. No single
customer accounted for more than 10% of consolidated net sales during 2004, 2003
and 2002. Each of the segments has certain major customers, the loss of any of
which would have a material adverse effect on such entity.



                              Years Ended December 31,
                           ------------------------------
                             2004       2003       2002
                           --------   --------   --------
                                   (in thousands)
                                        
NET SALES
Power Electronics Group:
   Condor                  $ 41,457   $ 39,450   $ 38,058
   Teal                      30,265     20,393     19,608
                           --------   --------   --------
      Total                  71,722     59,843     57,666
                           --------   --------   --------
SL-MTI                       24,497     22,053     23,007
RFL                          22,585     23,388     27,239
                           --------   --------   --------
Consolidated               $118,804   $105,284   $107,912
                           ========   ========   ========



                                      F-26





                                                   Years Ended December 31,
                                                 ---------------------------
                                                   2004      2003      2002
                                                 -------   -------   -------
                                                        (in thousands)
                                                            
INCOME FROM CONTINUING OPERATIONS
Power Electronics Group:
   Condor                                        $ 3,789   $ 3,377   $ 1,687
   Teal                                            4,635     2,671     1,873
                                                 -------   -------   -------
      Total                                        8,424     6,048     3,560
                                                 -------   -------   -------
SL-MTI                                             2,827     1,957     1,873
RFL                                                2,091     2,236     3,435
Other expenses and Corporate office               (5,033)   (3,288)   (3,692)
Restructuring charges (a)                             --        --      (230)
Impairment of assets (b)                              --      (275)       --
Special charges (c)                                   --        --    (1,834)
                                                 -------   -------   -------
Income from operations                           $ 8,309     6,678     3,112
Deferred financing costs                            (447)     (447)       --
Interest income                                      102       172        25
Interest expense (d)                                (347)     (380)   (2,256)
                                                 -------   -------   -------
Income from continuing operations before taxes   $ 7,617   $ 6,023   $   881
                                                 =======   =======   =======


(a)  $230 related to Condor.

(b)  $275 related to a building owned by the Company which was used by SurfTech.

(c)  $1,834 related to Corporate change-in-control and proxy costs.

(d)  A facility fee of $780 is included in 2002.



                                   December 31, 2004   December 31, 2003
                                   -----------------   -----------------
                                               (in thousands)
                                                 
TOTAL ASSETS
Power Electronics Group:
   Condor                               $14,105             $11,439
   Teal                                  12,742               9,665
                                        -------             -------
      Total                              26,847              21,104
                                        -------             -------
SL-MTI                                   10,849               9,255
RFL                                      16,767              16,512
Other including Corporate Office          8,621              11,550
                                        -------             -------
Consolidated                            $63,084             $58,421
                                        =======             =======




                                   December 31, 2004   December 31, 2003
                                   -----------------   -----------------
                                               (in thousands)
                                                 
INTANGIBLE ASSETS (NET)
Teal                                    $ 5,906             $ 6,009
SL-MTI                                       20                  25
RFL                                       5,586               5,249
                                        -------             -------
Consolidated                            $11,512             $11,283
                                        =======             =======



                                      F-27





                                       Years Ended December 31,
                                   ------------------------------
                                     2004       2003       2002
                                   --------   --------   --------
                                            (in thousands)
                                                
CAPITAL EXPENDITURES
Power Electronics Group:
   Condor                          $    542   $    936   $    511
   Teal                                 189         23        143
                                   --------   --------   --------
      Total                             731        959        654
                                   --------   --------   --------
SL-MTI                                  476        201        206
RFL                                     410        435        606
Other including Corporate Office         25         21         --
                                   --------   --------   --------
Consolidated                       $  1,642   $  1,616   $  1,466
                                   ========   ========   ========




                                      Years Ended December 31,
                                   ------------------------------
                                     2004       2003       2002
                                   --------   --------   --------
                                           (in thousands)
                                                
DEPRECIATION AND AMORTIZATION
Power Electronics Group:
   Condor                          $    978   $    704   $  1,181
   Teal                                 291        268        474
                                   --------   --------   --------
      Total                           1,269        972      1,655
                                   --------   --------   --------
SL-MTI                                  289        304        375
RFL                                     532        516        562
Other including Corporate Office         43         59         42
                                   --------   --------   --------
Consolidated                       $  2,133   $  1,851   $  2,634
                                   ========   ========   ========


Financial information relating to the Company's segments by geographic area is
as follows:



                                      Years Ended December 31,
                                   ------------------------------
                                     2004       2003       2002
                                   --------   --------   --------
                                           (in thousands)
                                                
NET SALES (1)
United States                      $103,141   $ 92,169   $ 94,112
Foreign                              15,663     13,115     13,800
                                   --------   --------   --------
Consolidated                       $118,804   $105,284   $107,912
                                   --------   --------   --------
LONG-LIVED ASSETS
United States                      $ 18,637   $ 19,110   $ 20,200
Foreign                               1,384      1,720      1,301
                                   --------   --------   --------
Consolidated                       $ 20,021   $ 20,830   $ 21,501
                                   ========   ========   ========


(1)  Net sales are attributed to countries based on location of customer.

NOTE 16. FOREIGN OPERATIONS

In addition to manufacturing operations in California, Minnesota and New Jersey,
the Company manufactures substantial quantities of products in leased premises
located in Mexicali and Matamoros, Mexico. The Company has outsourced the
manufacture of some of its products with contract manufacturers located in
Shanghai and Dongguan, China. These sources of supply present risks of
interruption for reasons beyond the Company's control, including political and
other uncertainties. During 2002, the Company manufactured products in
Ingolstadt, Germany and Paks, Hungary. The


                                      F-28



locations in Germany and Hungary were transferred as part of the sale of EME on
January 6, 2003. In addition the Condor plant in Reynosa, Mexico, was closed in
March 2002.

Condor manufactures substantially all of its products in Mexico and incurs its
labor costs and supplies in Mexican pesos. Teal has moved a limited amount of
its manufacturing to Condor's facility in Mexico. SL-MTI manufactures
approximately 60% of its products in Mexico and incurs related labor costs and
supplies in Mexican pesos. Condor, Teal and SL-MTI price their sales in United
States dollars. The Mexican subsidiaries of Condor and SL-MTI maintain their
books and records in Mexican pesos.

Generally, the Company's sales from continuing operations are priced in United
States dollars and its costs and expenses are priced in United States dollars
and Mexican pesos. Foreign sales comprised 13%, 12% and 13% of sales for 2004,
2003 and 2002, respectively. Accordingly, the competitiveness of the Company's
products relative to locally produced products may be affected by the
performance of the United States dollar compared with that of its foreign
customers' currencies. Additionally, the Company is exposed to foreign currency
transaction and translation losses which might result from adverse fluctuations
in the values of the Mexican peso. As of December 31, 2004 and 2003, the Company
had net liabilities of $286,000 and $233,000, respectively, subject to
fluctuations in the value of the Mexican peso. Fluctuations in the value of the
Mexican peso were not significant in 2004. However, there can be no assurance
that the value of the Mexican peso will continue to remain stable.

NOTE 17. RELATED PARTY TRANSACTIONS

As discussed in Note 2 the Company sold EME on January 6, 2003. The Company had
engaged Imperial Capital, LLC to explore the sale of the Company or one or more
of its subsidiaries. Imperial Capital, LLC contacted over four hundred potential
buyers with respect to the sale of the Company and its subsidiaries, and in the
process received several indications of interest to acquire EME. After
negotiations, the Company's Board of Directors determined that in light of the
current circumstances including but not limited to the maturity of the Company's
Former Credit Facility on December 31, 2002 and its need for additional capital
at that time, it was in the best interest of the Company to pursue the offer
received for EME from the ultimate purchaser. A principal of the buyer of EME is
a limited partner in Steel Partners II, L.P. ("Steel"), an investment
partnership. The Company's Chairman of the Board and Chief Executive Officer is
the sole executive officer and managing member of Steel.

During the period January 1, 2004 to June 9, 2004, the Company was billed
$81,000 in legal fees for services performed by Olshan Grundman Frome Rosenzweig
& Wolosky LLP ("Olshan"), a law firm in which a former director of the Company
is a senior partner. This director did not stand for reelection at the Company's
Annual Meeting of Shareholders held on June 9, 2004 and therefore is no longer
considered a related party. All fees incurred through June 9, 2004 for 2004
services have been paid by the Company as of December 31, 2004. The fees related
to general corporate and securities matters.

As a result of certain services being provided to the Company by Steel Partners,
Ltd. ("SPL"), a company controlled by the Chairman of the Board and Chief
Executive Officer of the Company, Warren Lichtenstein, the Compensation
Committee has approved fees for services provided by SPL. These fees are the
only consideration for the services of the Chairman of the Board and Chief
Executive Officer, Warren Lichtenstein, the Company's President, Glen Kassan,
and other assistance from SPL. The services provided include management and
advisory services with respect to operations, strategic planning, finance and
accounting, merger, sale and acquisition activities and other aspects of the
businesses of the Company. Fees of $475,000 were expensed by the Company for
SPL's services in


                                      F-29



2004 and 2003 pursuant to the Management Agreement dated as of January 23, 2002
by and between the Company and SPL. Approximately $290,000 and $40,000 were
payable at December 31, 2004 and December 31, 2003, respectively. An additional
payment of $250,000 was also awarded to SPL by the Compensation Committee on
account of SPL's services in 2004 in recognition of SPL's very significant
contributions to the Company's success, including the improvement in operating
performance and the reduction of indebtedness, as well as the improvement in
returns on invested capital and the Company's stock price, among other things.

RFL has an investment of $15,000 in RFL Communications PLC, ("RFL
Communications"), representing 4.5% of the outstanding equity thereof. RFL
Communications is a distributor of teleprotection and communication equipment
located in the United Kingdom. It is authorized to sell RFL products in
accordance with an international sales agreement. Sales to RFL Communications
for the years ended 2004, 2003 and 2002 were $1,156,000, $621,000 and $978,000,
respectively. Accounts receivable due from RFL Communications at December 31,
2004 and 2003 were $116,000 and $53,000, respectively.

NOTE 18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)



                                            Three Months     Three Months      Three Months         Three Months
                                                Ended           Ended              Ended               Ended
                                           March 31, 2004   June 30, 2004   September 30, 2004   December 31, 2004
                                           --------------   -------------   ------------------   -----------------
                                                            (in thousands, except per share data)
                                                                                     
YEAR ENDED DECEMBER 31, 2004
Net sales                                      $26,641         $30,508            $30,910             $30,745
Gross margin                                   $ 9,596         $11,388            $11,280             $10,958
Income from continuing operations before
   income taxes                                $ 1,036         $ 2,135            $ 2,522             $ 1,924
Net income (a)                                 $ 3,142         $ 1,579            $ 2,551             $ 1,400
Diluted net income per common share            $  0.52         $  0.26            $  0.43             $  0.25

(a) Includes income (loss) from                $ 2,457         $    20            $    (3)            $  (103)
    discontinued operations net of tax




                                            Three Months     Three Months      Three Months         Three Months
                                                Ended           Ended              Ended               Ended
                                           March 31, 2003   June 30, 2003   September 30, 2003   December 31, 2003
                                           --------------   -------------   ------------------   -----------------
                                                            (in thousands, except per share data)
                                                                                     
YEAR ENDED DECEMBER 31, 2003
Net sales (e)                                  $25,710         $26,927            $26,243             $26,404
Gross margin (f)                               $ 8,996         $10,287            $ 9,639             $10,352
Income from continuing operations
   before income taxes (g)                     $   818         $ 1,706            $ 1,415             $ 2,084
Net income (h)                                 $   186         $   699            $   155             $   280
Diluted net income per common share            $  0.03         $  0.12            $  0.03             $  0.05

(e) Excludes net sales from
   discontinued operations                     $   508         $   517            $   489             $   326
(f) Excludes gross margin from
   discontinued operations                     $   103         $   139            $   (21)            $    82
(g) Excludes loss before income
   taxes from discontinued operations          $  (445)        $  (648)           $(1,030)            $(1,461)
(h) Includes loss from discontinued
   operations net of tax                       $  (285)        $  (428)           $  (706)            $(1,003)



                                      F-30



                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS



                                                       Additions
                                              ---------------------------
                                Balance at    Charged to       Charged
                               Beginning of    Costs and      to Other                     Balance at
Description                       Period       Expenses       Accounts      Deductions   End of Period
-----------                    ------------   ----------   --------------   ----------   -------------
                                                           (In thousands)
                                                                          
YEAR ENDED DECEMBER 31, 2004
Allowance for:
   Doubtful accounts               $365          $136          $  3           $ 32            $472

YEAR ENDED DECEMBER 31, 2003
Allowance for:
   Doubtful accounts               $270          $ 76          $102(a)        $ 83            $365

YEAR ENDED DECEMBER 31, 2002
Allowance for:
   Doubtful accounts               $538          $109          $ --           $377(b)         $270


(a)  Due to reclassifications.

(b)  Accounts receivable written off, net of recoveries.


                                      F-31