Edgar Filing: SL INDUSTRIES INC

sec document

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 2002
REGISTRATION NO. 333-

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SL INDUSTRIES, INC.
(Exact Name of registrant as Specified in Its Charter)

New Jersey
(State or Other Jurisdiction of Incorporation or Organization)

360070
(Primary Standard Industrial Classification Code Number)

21-0682685
(I.R.S. Employer Identification Number)

520 Fellowship Road, Suite A114
Mt. Laurel, NJ 08054
(856) 727-1500
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)

Warren Lichtenstein, Chairman of the Board
SL Industries, Inc.
520 Fellowship Road, Suite A114
Mt. Laurel, NJ 08054
(856) 727-1500
(Name, Address Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)

-----------------------

Copy To:
Adam Finerman, Esq.
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue
New York, NY 10022
(212) 753-7200

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Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/

If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /

------------------------

CALCULATION OF REGISTRATION FEE

Proposed
Title Of Each Class Of Maximum Aggregate Amount Of
Securities To Be Registered(1) Offering Price(2) Registration Fee

Nontransferable Common Stock
Purchase Rights................... $ -0- (3) $ -0-(3)
Common Stock, $0.001 par value per
share, issuable upon exercise of
nontransferable rights........... $5,000,000(4) $ 460

(1) This registration statement relates to (a) nontransferable rights to
purchase shares of common stock of SL Industries, or the Company, which
rights will be issued to holders of common stock of the Company, and (b)
the shares of common stock deliverable upon exercise of nontransferable
rights pursuant to the rights offering.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(3) The nontransferable rights are being issued without consideration.
Pursuant to Rule 457(g) under the Securities Act of 1933, as amended, no
separate registration fee is required because the rights are being
registered in the same registration statement as the common stock
underlying the rights.
(4) Represents the gross proceeds from the assumed exercise of all
nontransferable rights issued.

------------------------

THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 11, 2002
PROSPECTUS
SL Industries, Inc.
Shares of Common Stock

-----------------------

We are distributing to holders of our common stock, at no charge,
nontransferable subscription rights to purchase up to an aggregate of _______
shares of our common stock at a cash subscription price of $___________ per
share. If you exercise your rights in full, you may over-subscribe for the
purchase of additional shares that remain unsubscribed at the expiration of the
rights offering, subject to availability and allocation of shares among persons
exercising this over-subscription privilege. You will not be entitled to receive
any rights unless you hold of record shares of our common stock as of the close
of business on ________________, 2002.

This rights offering is being made in connection with the
refinancing of our bank credit facility, which is currently being negotiated.
The proceeds of this rights offering will be used to repay an interest-bearing
loan made to us by Steel Partners II, L.P. ("Steel Partners") and to the extent
available, for working capital purposes.

Steel Partners, which owns approximately 12.7% of our outstanding
voting stock, has agreed with us to exercise all of its rights, including
over-subscription rights, and further purchase any unsubscribed shares remaining
after the expiration of the over-subscription privilege in the rights offering
up to ____ shares.

Warren Lichtenstein, our Chief Executive Officer and the Chairman of
the Board, is also the Managing Member of the General Partner of Steel Partners.
By virtue of his position at Steel Partners, Mr. Lichtenstein has the power to
vote and dispose all of Steel Partners' shares of our stock.

The rights will expire if they are not exercised by 12:00 midnight,
New York City time, on ______________, 2002, the expected expiration date of
this rights offering. We may extend the period for exercising the rights. Rights
that are not exercised by the expiration date of the rights offering will expire
and will have no value. You should carefully consider whether to exercise your
rights before the expiration date. Our board of directors is making no
recommendation regarding your exercise of rights.

The rights may not be sold or transferred except under the very
limited circumstances described later in this prospectus.

Shares of our common stock are traded on the New York Stock Exchange
under the symbol "SL." On October 10, 2002, the last reported sales price for
our common stock was $4.50 per share.

AN INVESTMENT IN OUR COMMON STOCK IS VERY RISKY. YOU SHOULD
CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE ___ OF THIS PROSPECTUS
BEFORE EXERCISING YOUR RIGHTS.

-----------------------

Proceeds of Offering
--------------------

Per Share Total
---------------- -----------

Subscription Price.............. $ $
Estimated Expenses.............. $ $
- -
Net Proceeds to SL Industries $ $
= =

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

-----------------------

The date of this prospectus is ____________, 2002.

TABLE OF CONTENTS

Page(s)
-------

Questions and Answers About the Rights Offering........................ ii
Summary................................................................ 1
Risk Factors........................................................... 6
Use of Proceeds........................................................ 12
Price Range of Common Stock............................................ 12
The Company............................................................ 13
Description of Property................................................ 18
Legal Proceedings...................................................... 19
Capitalization......................................................... 21
Selected Consolidated Financial Data................................... 22
Management Discussion and Analysis of Financial Condition
and Results of Operations............................................. 23
Quantitative and Qualitative Disclosures About Market Risk............. 34
Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure................................... 35
Directors and Officers................................................. 36
Security Ownership of Certain Beneficial Owners and Management......... 41
Certain Relationships and Related Transactions......................... 43
The Rights Offering.................................................... 43
Backstop Agreement..................................................... 50
Description of Capital Stock........................................... 51
Certain United States Federal Income Tax Consequences.................. 52
Legal Matters.......................................................... 53
Experts................................................................ 53
Where You Can Find More Information.................................... 54
Forward-Looking Statements............................................. 54
Index to Financial Statements and Financial Statement Schedule......... F-1

This prospectus is part of a Registration Statement we filed with
the SEC. You should rely only on the information contained in this prospectus or
to which we have referred you. We have not authorized anyone to provide you with
different information. This prospectus may only be used where it is legal to
sell these securities. You should not assume that the information in or
incorporated by reference in this prospectus is accurate as of any date other
than the date on the front cover of those documents. Our business, financial
condition, results of operations and prospects may have changed since those
dates.

Any statement contained in this prospectus or in a document all or a
portion of which is incorporated or deemed to be incorporated by reference in
this prospectus shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference in this prospectus modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.

QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING

Q: WHAT IS THE RIGHTS OFFERING?

A: The rights offering is a distribution to holders of our common stock of
______ nontransferable subscription rights at the rate of one right for
each ____ shares of common stock owned as of ________, 2002, the record
date.

Q: WHAT IS A SUBSCRIPTION RIGHT?

A: Each subscription right is a right to purchase a share of our common stock
and carries with it a basic subscription privilege and an
over-subscription privilege.

Q: WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?

A: The basic subscription privilege of each right entitles you to purchase
one share of our common stock at the subscription price of $_____ per
share. Fractional rights will be eliminated by rounding up to the next
higher whole right.

Q: WHAT IS THE OVER-SUBSCRIPTION PRIVILEGE?

A: We do not expect that all of our stockholders will exercise all of their
basic subscription rights. By extending over-subscription privileges to
our stockholders, we are providing stockholders that exercise all of their
basic subscription privileges with the opportunity to purchase those
shares that are not purchased by other stockholders through the exercise
of their basic subscription privileges. The over-subscription privilege of
each right entitles you, if you fully exercise your basic subscription
privilege, to subscribe for additional shares of our common stock
unclaimed by other holders of rights in the rights offering, at the same
subscription price per share.

Q: WHY ARE WE ENGAGING IN A RIGHTS OFFERING?

A: The rights offering is being made to raise funds to repay an
interest-bearing loan which we received in connection with the refinancing
of our bank credit facility. We want to give you the opportunity to
participate in this fund raising effort and to purchase additional shares
of our common stock.

Q: WHAT HAPPENS IF I CHOOSE NOT TO EXERCISE MY SUBSCRIPTION RIGHTS?

A: You will retain your current number of shares of common stock even if you
do not exercise your subscription rights. If you choose not to exercise
your subscription rights, then the percentage of our common stock that you
own will decrease.

Q: WHAT SHOULD I DO IF I WANT TO PARTICIPATE IN THE RIGHTS OFFERING BUT MY
SHARES ARE HELD IN THE NAME OF MY BROKER, CUSTODIAN BANK OR OTHER NOMINEE?

A: If you hold shares of our common stock through a broker, custodian bank or
other nominee, we will ask your broker, custodian bank or other nominee to
notify you of the rights offering. If you wish to exercise your rights,
you will need to have your broker, custodian bank or other nominee act for
you. To indicate your decision, you should complete and return to your
broker, custodian bank or other nominee the form entitled "Beneficial
Owner Election Form." You should receive this form from your broker,
custodian bank or other nominee with the other rights offering materials.
You should contact your broker, custodian bank or other nominee if you
believe you are entitled to participate in the rights offering but you
have not received this form.

Q: WHAT IF THE MARKET PRICE OF OUR COMMON STOCK IS LESS THAN THE SUBSCRIPTION
PRICE OF [$ ], WHEN I AM DECIDING TO EXERCISE MY SUBSCRIPTION RIGHTS?

A: Consult your broker. Depending on the market price of our common stock, it
most likely will be more cost effective for you to purchase shares of our
common stock on the New York Stock Exchange rather than exercise your
subscription rights.

Q: WILL I BE CHARGED A SALES COMMISSION OR A FEE BY THE COMPANY IF I EXERCISE
MY SUBSCRIPTION RIGHTS?

A: No. We will not charge a brokerage commission or a fee to rights holders
for exercising their rights. However, if you exercise your rights through
a broker or nominee, you will be responsible for any fees charged by your
broker or nominee.

Q: WHAT IS THE BOARD OF DIRECTORS' RECOMMENDATION REGARDING THE RIGHTS
OFFERING?

A: Our board of directors is not making any recommendation as to whether you
should exercise your subscription rights. You are urged to make your
decision based on your own assessment of the rights offering and the
company.

Q: HOW MANY SHARES MAY I PURCHASE?

A: You will receive one nontransferable subscription right for each ____
shares of common stock that you owned on ____________, 2002, the record
date. Each subscription right contains the basic subscription privilege
and the over-subscription privilege. Each basic subscription privilege
entitles you to purchase one share of common stock for $___. Fractional
rights will be eliminated by rounding up to the next higher whole right.
See "The Rights Offering - Subscription Privileges - Basic Subscription
Privilege." The over-subscription privilege entitles you to subscribe for
additional shares of our common stock at the same subscription price per
share on a pro-rata basis to the number of shares you purchased under your
basic subscription privilege, provided you fully exercise your basic
subscription privilege. "Pro-rata" means in proportion to the number of
shares of our common stock that you and the other rights holders electing
to exercise their over-subscription privileges have purchased by
exercising the basic subscription privileges on their holdings of common
stock. See "The Rights Offering--Subscription
Privileges--Over-Subscription Privilege."

Q: HOW WAS THE SUBSCRIPTION PRICE ESTABLISHED?

A: The subscription price per share was established by our board of directors
based on the recommendation of a special committee of directors, excluding
those directors affiliated with Steel Partners who did not participate (in
their capacity as directors) in the discussion, consideration or voting
with respect to these matters. These factors included the historic and
then current market price of the common stock, our business prospects, our
recent and anticipated operating results, general conditions in the
securities markets, our need for capital, alternatives available to us for
raising capital, the amount of proceeds desired, the pricing of similar
transactions, the liquidity of our common stock, and the level of risk to
our investors.

iii

Q: IS EXERCISING MY SUBSCRIPTION RIGHTS RISKY?

A: Yes. The exercise of your rights involves risks. Exercising your rights
means buying additional shares of our common stock and should be
considered as carefully as you would consider any other equity investment.
Among other things, you should carefully consider the risks described
under the heading "Risk Factors," beginning on page __.

Q: MAY I TRANSFER MY RIGHTS IF I DO NOT WANT TO PURCHASE ANY SHARES?

A: No. Should you choose not to exercise your rights, you may not sell, give
away or otherwise transfer your rights. However, rights will be
transferable to affiliates of the recipient and by operation of law -- for
example, upon death of the recipient.

Q: AM I REQUIRED TO SUBSCRIBE IN THE RIGHTS OFFERING?

A: No.

Q: HOW MANY SHARES WILL BE OUTSTANDING AFTER THE RIGHTS OFFERING?

A: The number of shares of common stock that will be outstanding immediately
after the rights offering will be __________ shares.

Q: WHAT HAPPENS IF THE RIGHTS OFFERING IS NOT FULLY SUBSCRIBED AFTER GIVING
EFFECT TO THE OVER-SUBSCRIPTION PRIVILEGE?

A: Steel Partners has agreed to exercise all of its rights, including over
subscription rights, and further purchase any unsubscribed shares
remaining after the expiration of the over-subscription privilege in the
rights offering up to _____ shares.

Q: HOW WILL THE RIGHTS OFFERING AFFECT STEEL PARTNERS' OWNERSHIP OF OUR
COMMON STOCK?

A: Steel Partners beneficially owns 746,250 shares of our common stock,
representing 12.7% of our outstanding common stock and of the voting power
of our outstanding voting securities.

If no rights holders other than Steel Partners exercise their rights in
the rights offering, Steel Partners will, as a result of its subscription
for and purchase of all unsubscribed shares up to ___ shares, own
approximately _____ shares, representing ____% of our outstanding common
stock and of the voting power of our outstanding voting securities. If all
rights holders exercise their basic subscription privileges in full, then
Steel Partners will continue to own 12.7% of our common stock and of the
voting power of our outstanding voting securities.

Q: AFTER I EXERCISE MY RIGHTS, CAN I CHANGE MY MIND AND CANCEL MY PURCHASE?

A: No. Once you send in your subscription certificate and payment you cannot
revoke the exercise of your rights, even if you later learn information
about us that you consider to be unfavorable and even if the market price
of our common stock is below the $____ per share subscription price. You
should not exercise your subscription rights unless you are certain that
you wish to purchase additional shares of our common stock at a price of
$_____ per share. See "The Rights Offering - No Revocation."

Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF EXERCISING MY SUBSCRIPTION
RIGHTS AS A HOLDER OF COMMON STOCK?

A: A holder of common stock should not recognize income or loss for federal
income tax purposes in connection with the receipt or exercise of
subscription rights in the rights offering. See "Certain United States
Federal Income Tax Consequences" on page __.

Q: IF THE RIGHTS OFFERING IS NOT COMPLETED, WILL MY SUBSCRIPTION PAYMENT BE
REFUNDED TO ME?

A: Yes. The subscription agent will hold all funds it receives in escrow
until completion of the rights offering. If the rights offering is not
completed, the subscription agent will return promptly, without interest,
all subscription payments.

Q: WHAT SHOULD I DO IF I HAVE OTHER QUESTIONS?

A: If you have questions or need assistance, please contact ____________, the
subscription agent, at: ( )_____-_____. Banks and brokerage firms please
call ( )_____-_____. For a more complete description of the rights
offering, see "The Rights Offering" beginning on page _____.

SUMMARY

This summary highlights information contained elsewhere in this
prospectus. This summary may not contain all of the information that is
important to you. This prospectus includes or incorporates by reference
information about our business and our financial and operating data. Before
making an investment decision, we encourage you to read the entire prospectus
carefully, including the risks discussed in the "Risk Factors" section. We also
encourage you to review our financial statements and the other information we
provide in the reports and other documents that we file with the SEC, as
described under "Where You Can Find More Information."

In this prospectus, unless the context requires a different meaning,
all references to "SL," "we," "our," "us" or " the company" refer to SL
Industries and its subsidiaries. All references to "Steel Partners" refer to
Steel Partners II, L.P.

The Company

We, through our subsidiaries, design, manufacture and market power
electronics, power motion and power protection equipment that is used in a
variety of aerospace, computer, datacom, industrial, medical, telecom,
transportation and utility equipment applications. Our products are incorporated
into larger systems to increase operating safety, reliability and efficiency.
Our products are largely sold to original equipment manufacturers, and to a
lesser extent, to commercial distributors. On March 29, 1956, we were
incorporated as G-L Electronics Company in the state of New Jersey. Our 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. For the year ended December 31, 2001, we sustained a loss from continuing
operations of $6,703,000 and for the six months ended June 30, 2002 we sustained
a loss from continuing operations of $358,000.

During the fiscal year ended December 31, 2000, we were comprised of
five business segments: Power Supplies, Power Conditioning and Distribution
Units, Motion Control Systems, Electric Utility Equipment Protection Systems and
Other. At year-end December 2001, we changed the composition of our reportable
segments to reflect individual continuing business units as follows:

1. Condor PC Power Supplies, Inc. which 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;

2. Teal Electronics Corporation which is a leader in the design and
manufacture of customized power conditioning and power distribution units;

3. SL Montevideo Technology, Inc. which is a technological leader in
the design and manufacture of intelligent, high power density precision motors;

4. Elektro-Metall Export GmbH which is a leader in electromechanical
actuation systems, power drive units and complex wire harness systems for use in
the aerospace and automobile industries;

5. RFL Electronics Inc. which designs and manufactures
teleprotection products/systems used to protect electric utility transmission
lines and apparatus by isolating faulty transmission lines from a transmission
grid; and

6. SL Surface Technologies, Inc. which produces industrial coatings
and platings for equipment in the corrugated paper and telecommunications
industries.

We are a New Jersey corporation, the address of our principal
executive office is 520 Fellowship Road, Suite A114, Mt. Laurel, NJ 08054, and
our telephone number at that address is (856) 727-1500.

Summary Of the Rights Offering

Rights ........................... We will distribute to holders of our
common stock, at no charge, one
nontransferable subscription right for
each _____ shares of our common stock
owned of record on _________, 2002. The
rights will be evidenced by a
nontransferable rights certificate.

Basic Subscription Privilege....... Each right will entitle the holder to
purchase one share of our common stock
for $____. Fractional rights will be
rounded up to the next higher whole
right.

Over-Subscription Privilege......... Each rights holder who elects to exercise
its basic subscription privilege in full
may also subscribe for additional shares
at the same subscription price per share.
If an insufficient number of shares is
available to fully satisfy all
over-subscription privilege requests, the
available shares will be distributed
proportionately among rights holders who
exercised their over-subscription
privilege based on the number of shares
each rights holder subscribed for under
the basic subscription privilege. The
subscription agent will return any excess
payments by mail without interest or
deduction promptly after the expiration
of the rights offering.

Steel Partners has agreed with us to
exercise its basic subscription rights
and oversubscription privileges in the
rights offering. To the extent that
additional shares remain unsubscribed at
the expiration of the over-subscription
privilege, Steel Partners has agreed with
us to purchase the unsubscribed shares at
the purchase price established in the
rights offering up to ___ shares.

Subscription Price............... $____ per share.

Record Date...................... ___________, 2002.

Expiration Date.................. The rights will expire, if not exercised,
at 12:00 midnight, New York City time, on
_________, 2002, unless we decide to
extend the rights offering until some
later time.

Nontransferability of Rights...... The rights are not transferable, except
to an affiliate of the recipient and by
operation of law.

Procedure for Exercising Rights... You may exercise your rights by properly
completing and signing your rights
certificate. You must deliver your rights
certificate with full payment of the
subscription price (including any amounts
in respect of the over-subscription
privilege) to the subscription agent on
or prior to the expiration date. If you
use the mail, we recommend that you use
insured, registered mail, return receipt

requested. If you cannot deliver your
rights certificate to the subscription
agent on time, you may follow the
guaranteed delivery procedures described
under "The Rights Offering--Guaranteed
Delivery Procedures" beginning on page
__.

No Revocation.................... Once you have exercised your basic
subscription privilege your exercise may
not be revoked. Rights not exercised
prior to the expiration of the rights
offering will expire.

How Rights Holders Can Exercise If you hold shares of our common stock
Rights Through Others........... through a broker, custodian bank or other
nominee, we will ask your broker,
custodian bank or other nominee to notify
you of the rights offering. If you wish
to exercise your rights, you will need to
have your broker, custodian bank or other
nominee act for you. To indicate your
decision, you should complete and return
to your broker, custodian bank or other
nominee the form entitled "Beneficial
Owner Election Form." You should receive
this form from your broker, custodian
bank or other nominee with the other
rights offering materials. You should
contact your broker, custodian bank or
other nominee if you believe you are
entitled to participate in the rights
offering but you have not received this
form.

How Foreign Shareholders and The subscription agent will mail rights
Shareholders with APO or FPO certificates to you if you are a rights
Addresses Can Exercise Rights.. holder whose address is outside the
United States or if you have an Army Post
Office or a Fleet Post Office address. To
exercise your rights, you must notify the
subscription agent on or prior to 12:00
midnight, New York City time, on
_________ 2002, and take all other steps
which are necessary to exercise your
rights, on or prior to that time. If you
do not follow these procedures prior to
the expiration of the rights offering,
your rights will expire.

Certain United States Federal A holder of common stock should not
Income Tax Consequences....... recognize income or loss for federal
income tax purposes in connection with
the receipt or exercise of subscription
rights in the rights offering. For a
detailed discussion see, "Certain United
States Federal Income Tax Consequences."

Issuance of Stock Certificates... We will issue certificates representing
shares purchased in the rights offering
as soon as practicable after the
expiration of the rights offering.

No Recommendation to We are not making any recommendations as
Rights Holders................. to whether you should subscribe for
shares of our common stock. You should
decide whether to subscribe for shares
based upon your own assessment of your
best interests.

NYSE Listing of Our Common Stock... Our common stock is traded on the New
York Stock Exchange under the symbol
"SL." On October 10, 2002, the last
trading day prior to the filing of this
registration statement relating to this
rights offering, the closing price of our
common stock on the NYSE was $4.50 per
share. On ________, 2002, the last
trading day before the date of this
prospectus, the closing price of our
common stock on the NYSE was $______ per
share. We have received official
notification from the NYSE that we were
"below criteria" of certain of the NYSE's
continued listing standards and there can
be no assurance that we will be able to
satisfy NYSE requirements and continue to
be listed on the NYSE.

NYSE Symbol for Our Common Stock... "SL"

Use of Proceeds.................... We expect to raise $5 million in net
proceeds from the sale of common stock in
this offering. We will use the proceeds
to repay an interest-bearing loan from
Steel Partners and to the extent
available, for working capital purposes.

Subscription Agent ___________, ( ) ____-____or ( ) ____-____

For additional information concerning the rights offering, see "The
Rights Offering" below.

SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements and notes thereto, and other
financial information included elsewhere in this prospectus. Our consolidated
statements of operations data set forth below for the years ended December 31,
2001 and 2000 and July 31, 1999, and for the five months ended December 31, 1999
and 1998 (unaudited) and the consolidated balance sheet data as of December 31,
2001 and 2000 have been derived from our audited consolidated financial
statements which are included elsewhere in this prospectus. The consolidated
statement of operations data set forth below for the years ended July 31, 1998
and 1997 and the consolidated balance sheet data as of December 31, 1999 and
1998 (unaudited) and July 31, 1999, 1998 and 1997 have been derived from our
audited consolidated financial statements which are not included in this
prospectus. The balance sheet data and the statement of operations data as of
and for the six months ended June 30, 2002 and 2001 have been derived from our
unaudited financial statements, included elsewhere in this prospectus, which we
believe have been prepared on the same basis as the audited financial statements
and include all adjustments, consisting of normal recurring adjustments, which
we consider necessary for a fair presentation of the selected financial data
shown.

Twelve Twelve Twelve Twelve Twelve Five Five Months
Six Months Six Months Months Months Months Months Months Months Ended
Ended June Ended June Ended Ended Ended Ended Ended Ended December 31,
30, 2002 30, 2001 December December July 31, July 31, July 31, December 1998
(Unaudited) (Unaudited) 31, 2001 31, 2000 1999 1998 1997 31, 1999 (Unaudited)
------------------------------------------------------------------------------------------------
(amounts in thousands except per share data)
------------------------------------------------------------------------------------------------
Net sales (1)............ $67,356 $70,061 $138,467 $148,405 $88,694 $71,918 $68,044 $59,032 $32,809
Income (loss) from
continuing operations... $(358) $(2,215) $(6,703) $6,423 $5,799 $4,383 $6,720 $2,789 $1,258
Income (loss) from
discontinued
operations.............. $313 $(2,618) $(3,947) $(4,723) $(393) $930 $1,095 $(3,473) $703
Net income (loss) (2)... $(45) $(4,833) $(10,650) $1,700 $5,406 $5,313 $7,815 $(684) $1,961
Diluted net income (loss) per
common share ...... $ (0.01) $(0.85) $(1.87) $0.30 $0.92 $0.90 $1.30 $(0.12) $0.33
Shares used in computing
diluted net income (loss)
per common share......... 5,839 5,690 5,698 5,757 5,876 5,897 6,021 5,624 5,886
Cash dividend per
common share.............. -0- -0- -0- $0.10 $0.09 $0.08 $0.07 $0.05 $0.04
Year-end financial
position
Working capital........... $4,956 $(8,279) $3,476 $31,180 $24,812 $21,344 $17,399 $33,042 $22,145
Current ratio(3).......... 1.1 0.9 1.1 2.3 1.9 2.1 1.8 2.2 2.1
Total assets.............. $88,125 $110,143 $107,758 $113,481 $112,686 $80,915 $66,804 $117,050 $78,929
Long-term debt............ $62 $1,009 $1,009 $36,533 $31,984 $13,283 $700 $39,245 $12,255
Shareholders' equity...... $34,481 $39,148 $33,204 $43,350 $42,842 $38,345 $36,492 $42,072 $40,546
Book value per share...... $5.84 $6.86 $5.81 $7.69 $7.61 $6.84 $6.27 $7.48 $7.16
Other
Capital expenditures(4)... $1,120 $1,725 $2,342 $2,563 $1,901 $2,029 $1,327 $849 $1,247
Depreciation and
amortization........... $1,744 $2,313 $4,587 $4,379 $3,092 $2,335 $2,102 $1,830 $1,246

(1) During 2001, the Company sold SL Waber, Inc. ("SL Waber") and, accordingly,
the operations of SL Waber have been accounted for as discontinued operations in
all periods presented. The prior years have been restated to reflect this
accounting treatment.

(2) Calendar 2001 includes pre-tax 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 D.C. Power Supplies, Inc. ("Condor"), inventory
write-offs of $50,000, and restructuring and intangible asset impairment charges
of $185,000 and $125,000, respectively, related to SL Surface Technologies, Inc.
("SurfTech").
Calendar 2000 includes pre-tax income of $875,000 related to the settlement of a
class action suit against one of the Company's insurers, 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. The five-month
period ended December 31, 1999 includes pre-tax restructuring costs, inventory
write-downs and loss on commitments of $4,273,000 related to SL Waber, and a
pre-tax gain of $1,812,000 related to the demutualization of one of the
Company's life insurance carriers.

(3) The current ratio for 2001 includes all debt classified as current, due to
the December 31, 2002 maturity date of the Revolving Credit Facility (see Item 7
- Financial Condition)

(4) Excludes assets acquired in business combinations.

RISK FACTORS

This offering and an investment in the shares of our common stock
involve a high degree of risk. You should carefully consider the following
factors and other information presented or incorporated by reference in this
prospectus before deciding to invest in our common stock. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known to us may also impair our operations and
business. If we do not successfully address any one or more of the risks
described below, there could be a material adverse effect on our financial
condition, operating results and business. We cannot assure you that we will
successfully address these risks.

RISKS RELATING TO OUR BUSINESS

WE WILL BE ADVERSELY IMPACTED IF WE DO NOT REFINANCE OUR REVOLVING CREDIT
FACILITY PRIOR TO MATURITY IN 2002.

We are a party to a Second Amended and Restated Credit Agreement
dated as of December 13, 2001, as amended, by and among the Company, SL
Delaware, Inc., GE Capital CFE, Inc., Fleet National Bank and PNC Bank, National
Association as Banks, and GE Capital CFE, Inc. as Agent for the Banks (the
"Revolving Credit Facility"). The Revolving Credit Facility matures on December
31, 2002, and provides for the payment of a fee of approximately $780,000 in the
event that the facility is not retired on or before October 31, 2002, under
certain circumstances. Pursuant to the terms of the Revolving Credit Facility,
if the Company delivers a binding commitment letter to the banks by September
30, 2002 and refinances the Revolving Credit Facility on or before October 31,
2002, no such fee is due. The Company delivered binding commitment letters to
the banks on September 30, 2002 and is in the process of attempting to refinance
the Revolving Credit Facility prior to October 31, 2002. There can be no
assurance that we will refinance the Revolving Credit Facility prior to such
date, or that the Revolving Credit Facility will be refinanced successfully.

CURRENT FINANCIAL CONDITIONS RAISE CONCERNS ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN.

There can be no assurance that the Revolving Credit Facility will be
refinanced successfully or that we will be able to find alternative sources of
financing. In the event we are unable to fund our working capital needs and
other cash requirements through our available funds or through borrowings under
the Revolving Credit Facility, or are unable to refinance the Revolving Credit
Facility, there would be a material adverse effect upon our financial condition.
The opinion of our auditors contains a qualification with respect to our ability
to continue as a going concern. This opinion was based upon concerns regarding
the refinancing of our Revolving Credit Facility as well as our default of
certain financial covenants under the Revolving Credit Facility. Compliance with
such financial covenants was waived pursuant to a Waiver Agreement dated May 23,
2002.

WE HAVE BEEN INFORMED THAT WE ARE NOT IN COMPLIANCE WITH NEW YORK STOCK EXCHANGE
LISTING STANDARDS, AND MAY BE DELISTED. IF WE ARE DELISTED, OUR STOCK PRICE MAY
SUFFER.

On October 17, 2001, we received official notification from the New
York Stock Exchange ("NYSE") that we were "below criteria" of certain of the
NYSE's continued listing standards. Pursuant to the request of the NYSE, we
submitted a business plan on February 22, 2002 for compliance with the NYSE
continued listing standards. Our business plan was accepted by the NYSE. We are
currently required to deliver quarterly updates to the NYSE and we are currently
working with the NYSE to maintain our listing on the NYSE. There can be no
assurance that we will be able to satisfy NYSE requirements and continue to be
listed on the NYSE or, in the event that we cannot continue to be listed on the
NYSE, that we will be able to list our securities on another exchange. If our
listing on the NYSE cannot be maintained, shareholders may experience a greater
difficulty in trading shares of our common stock and the price of our common
stock could be adversely affected. This lack of liquidity may also make it more
difficult for us to raise capital.

WE MAY BE ADVERSELY AFFECTED BY FLUCTUATIONS IN CASH FLOWS, LIQUIDITY, DEBT
LEVELS, AND REFINANCING.

Working capital requirements and cash flows historically have been,
and are expected to continue to be, 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 cash flow fluctuations
resulting from such factors could have a material adverse effect on our
business, results of operations, and financial condition. In order to finance

the working capital requirements of our business, we have entered into the
Revolving Credit Facility and have borrowed funds thereunder. If operating cash
flows are not sufficient to meet operating expenses, capital expenditures and
debt service requirements as they become due, we may be required, in order to
meet our 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 and product design
enhancements.

OUR OPERATING RESULTS MAY FLUCTUATE, AND THERE MAY BE VOLATILITY IN GENERAL
INDUSTRY, ECONOMIC, AND MARKET CONDITIONS.

Our 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 our business, results of operations and financial condition.

General economic conditions, and specifically market conditions in
the telecommunications and semiconductor industry in the United States and
globally, affect our 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 our
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 our business, results of operation and financial condition.

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

Our facilities are subject to a broad array of environmental laws
and regulations. The costs 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.

Additionally, we are the subject of various lawsuits and actions
relating to environmental issues, including administrative action in connection
with SurfTech's Pennsauken facility which could subject us to, among other
things, $9,266,000 in collective reimbursements (with other parties) to the New
Jersey Department of Environmental Protection. 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 we
will be able to successfully defend or settle these or any other actions to
which we are a party.

WE 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 our business. Additionally, we
are subject to certain legal actions involving complaints by terminated
employees and disputes with customers and suppliers. One such claim has been
brought against us by a customer seeking $3,900,000 in compensatory damages. On
July 18, 2002, the court granted partial summary judgment to this customer by
finding that SL-MTI sold motors to it with an express warranty and an implied
warranty of merchantability. The nature and extent of those warranties will be
decided by a jury trial scheduled to start on October 28, 2002. There can be no
assurance of the outcome in any litigation. An adverse determination in any one
or more legal actions could have a material adverse effect on our business,
results of operations and financial condition.

WE EXPECT FLUCTUATIONS IN OPERATING RESULTS AND STOCK PRICE.

Operating results for future periods are never perfectly predictable
even in the most certain of economic times, and we expect to continue to
experience fluctuations in our quarterly results. These fluctuations, which in
the future may be significant, could cause substantial variability in the market
price of our stock.

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

Our business is dependent upon product sales to telecommunications,
semiconductor, medical imaging, aerospace and other businesses, which in turn
are dependent for their business upon orders from their customers. Any downturn
in the business of any of these parties affects us. 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 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 have
affected, and will in the future affect, results of operations from quarter to
quarter. Also, because our customers typically order in large quantities, any
subsequent cancellation, modification or rescheduling of an individual order may
alone affect our results of operations.

WE HAVE INCURRED, AND MAY IN THE FUTURE INCUR, INVENTORY-RELATED CHARGES, THE
AMOUNTS OF WHICH ARE DIFFICULT TO PREDICT ACCURATELY.

As a result of the business downturn in 2001, we have incurred
charges to align our inventory with actual customer requirements over the near
term. A rolling six-month forecast is utilized based on anticipated product
orders, product order history, forecasts, and backlog to assess inventory
requirements. We have incurred, and may in the future incur, significant
inventory-related charges. While we believe, based on current information, that
the inventory-related charges recorded in 2001 are appropriate, subsequent
changes to our forecast may indicate that these charges were insufficient.

FAILURE TO ACHIEVE ACCEPTABLE MANUFACTURING VOLUMES AND YIELDS MAY ADVERSELY
AFFECT OUR PROFITABILITY.

The ability to achieve profitability depends upon our ability to
timely deliver products to our customers at acceptable cost levels. The
manufacture of our products involves highly complex and precise processes.
Changes in manufacturing processes or those of suppliers, or their inadvertent
use of defective or contaminated materials, could significantly hurt our ability
to meet our customers' product volume and quality needs. Moreover, failure to
receive a sufficient level of customer orders could significantly hurt our
ability to meet our order volume and yield targets. Under existing manufacturing
techniques, which involve substantial manual labor, failure to meet volume and
yield targets could substantially increase unit costs. Failure to meet unit
costs would negatively impact operating results and, thereby, could have a
material adverse effect on our business, results of operations and financial
condition.

FAILURE TO REMAIN COMPETITIVE COULD ADVERSELY IMPACT OUR OPERATING RESULTS.

The markets in which we sell our products are highly competitive and
characterized by rapidly changing and converging technologies. We face intense
competition from established competitors and the threat of future competition
from new and emerging companies in all aspects of our business. Among our
current competitors are our customers, who are vertically integrated and either
manufacture and/or are capable of manufacturing some or all of the products we
sell 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,
we must maintain a substantial commitment to focused research and development,
improve the efficiency of our manufacturing operations, and streamline our
marketing and sales efforts and attendant customer service and support. Among
other things, we may not anticipate shifts in our 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 our efforts, technological
changes, manufacturing efficiencies or development efforts by competitors may
render our products or technologies obsolete or uncompetitive.

CONSOLIDATION IN THE INDUSTRY COULD INCREASE COMPETITIVE PRESSURES ON US.

The industries in which we operate 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. Our
relatively small size may increase competitive pressure for customers seeking
single vendor solutions. Such increased competition would increase the
variability of our operating results and could otherwise have a material adverse
effect on our business, results of operations and financial condition.

WE ARE DEPENDENT UPON THIRD PARTIES FOR PARTS AND COMPONENTS.

The ability to meet customer demand depends, in part, on our ability
to obtain timely and adequate delivery of parts and components from suppliers
and internal manufacturing capacity. We have experienced significant shortages
in the past and, although we work closely with our suppliers to avoid shortages,
there can be no assurance that we 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 our business, results of operations and financial
condition.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO STAY CURRENT WITH TECHNOLOGICAL
CHANGE AND NEW PRODUCT DEVELOPMENT.

The markets in which Condor (as hereinafter defined) and Teal (as
hereinafter defined) operate are characterized by rapidly changing technology
and shorter product life cycles. Our future success will continue to depend upon
our ability to enhance our current products and to develop new products that
keep pace with technological developments and respond to changes in customer
requirements. Any failure by us to respond adequately to technological changes
and customer requirements or any significant delay in new product introductions
could have a material adverse effect on our business and results of operations.
In addition, there can be no assurance that new products to be developed will
achieve market acceptance.

WE ARE DEPENDENT UPON KEY PERSONNEL FOR THE MANAGEMENT OF OUR OPERATIONS.

Our success depends in part upon the continued services of many of
our highly skilled personnel involved in management, engineering and sales, and
upon our 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 our business. In addition, our future success will
depend on the ability of officers and key employees to manage operations
successfully as we explore a sale of all or a part of our business, as well as
our ability to effectively attract, retain, motivate and manage employees during
this period of uncertainty.

OTHER FACTORS MAY AFFECT FUTURE RESULTS.

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

STEEL PARTNERS BENEFICIALLY OWNS A LARGE PERCENTAGE OF OUR VOTING STOCK.

As of the date of this prospectus, Steel Partners owned shares of
common stock entitling them to exercise 12.7% of the voting power of our
outstanding voting securities. As a result of the rights offering, the ownership
of Steel Partners could increase further as described under "The Rights
Offering--Shares of Common Stock Outstanding after the Rights Offering." In
addition, the Gabelli Funds beneficially owns 26.3% of the voting power of our
outstanding Common Stock.

Because of Steel Partners' and the Gabelli Funds' ownership of a
large percentage of our outstanding voting securities, they have significant
influence over our management and policies, such as the election of our
directors, the appointment of new management and the approval of any other
actions requiring the approval of our shareholders, including any amendments to
our certificate of incorporation and mergers or sales of all or substantially
all of our assets. In addition, the level of Steel Partners' and the Gabelli
Funds' ownership of our outstanding voting securities could have the effect of
discouraging or impeding an unsolicited acquisition proposal.

Steel Partners and its affiliates may have the right to appoint a
majority of our board of directors and will be able to exert substantial
influence over matters submitted to our shareholders, as well as over our
business operations.

RISKS RELATING TO THIS RIGHTS OFFERING

THE SUBSCRIPTION PRICE DETERMINED FOR THIS OFFERING IS NOT AN INDICATION OF OUR
VALUE OR THE VALUE OF OUR COMMON STOCK.

The subscription price for this rights offering is [$ ]. The
subscription price does not necessarily bear any relationship to the book value
of our assets, past operations, cash flows, losses, financial condition or any
other established criteria for value. You should not consider the subscription
price as an indication of our value. After the date of this prospectus, our
common stock may trade at prices above or below the subscription price.

IF YOU EXERCISE YOUR RIGHTS, YOU MAY LOSE MONEY IF THERE IS A DECLINE IN THE
TRADING PRICE OF OUR SHARES OF COMMON STOCK.

The trading price of our common stock in the future may decline
below the subscription price. We cannot assure you that the subscription price
will remain below any future trading price for the shares of our common stock.
Future prices of the shares of our common stock may adjust positively or
negatively depending on various factors including our future revenues and
earnings, changes in earnings estimates by analysts, our ability to meet
analysts' earnings estimates, speculation in the trade or business press about
our operations, and overall conditions affecting our businesses, economic trends
and the securities markets.

YOU MAY NOT REVOKE THE EXERCISE OF YOUR RIGHTS EVEN IF THERE IS A DECLINE IN OUR
COMMON STOCK PRICE PRIOR TO THE EXPIRATION DATE OF THE SUBSCRIPTION PERIOD.

Even if our common stock price declines below the subscription price
for the common stock, resulting in a loss on your investment upon the exercise
of rights to acquire shares of our common stock, you may not revoke or change
your exercise of rights after you send in your subscription forms and payment.

YOU WILL NOT RECEIVE INTEREST ON SUBSCRIPTION FUNDS RETURNED TO YOU.

If we cancel the rights offering, neither we nor the subscription
agent will have any obligation with respect to the subscription rights except to
return, without interest, any subscription payments to you.

BECAUSE WE MAY TERMINATE THE OFFERING, YOUR PARTICIPATION IN THE OFFERING IS NOT
ASSURED.

Once you exercise your subscription rights, you may not revoke the
exercise for any reason unless we amend the offering. If we decide to terminate
the offering, we will not have any obligation with respect to the subscription
rights except to return any subscription payments, without interest.

YOU NEED TO ACT PROMPTLY AND FOLLOW SUBSCRIPTION INSTRUCTIONS.

Shareholders who desire to purchase shares in this rights offering
must act promptly to ensure that all required forms and payments are actually
received by the subscription agent prior to ______, 2002, the expiration date.
If you fail to complete and sign the required subscription forms, send an
incorrect payment amount, or otherwise fail to follow the subscription
procedures that apply to your desired transaction the subscription agent may,
depending on the circumstances, reject your subscription or accept it to the
extent of the payment received. Neither we nor our subscription agent undertakes
to contact you concerning, or attempt to correct, an incomplete or incorrect
subscription form or payment. We have the sole discretion to determine whether a
subscription exercise properly follows the subscription procedures.

RISKS RELATING TO OUR COMMON STOCK.

OUR COMMON STOCK IS SUBJECT TO PRICE FLUCTUATIONS.

The market price for our common stock has been, and is likely to
continue to be, highly volatile. The market for our common stock is subject to
fluctuations as a result of a variety of factors, including factors beyond our
control. These include:

o our ability to obtain refinancing of the Revolving Credit
Facility prior to October 31, 2002;

o additions or departures of key personnel;

o changes in market valuations of similar companies;

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

o conditions or trends in the telecommunications and
semiconductors industries;

o announcements and expectations with respect to the sale of all
or part of the Company;

o general market and economic conditions; and

o other events or factors that are unforeseen.

WE DO NOT INTEND TO PAY DIVIDENDS ON SHARES OF OUR COMMON STOCK IN THE
FORESEEABLE FUTURE.

We currently expect to retain our future earnings, if any, to reduce
debt and for use in the operation of our business. Additionally, our credit
facility prohibits the payment of dividends without the consent of a majority of
our lenders. We do not anticipate paying any cash dividends on shares of our
common stock in the foreseeable future.

THE ISSUANCE OF PREFERRED STOCK OR ADDITIONAL COMMON STOCK MAY ADVERSELY AFFECT
OUR SHAREHOLDERS.

Our board of directors has the authority to issue up to 6,000,000
shares of our preferred stock, none of which are currently issued. Our board of
directors is authorized to determine the terms, including voting rights, of the
preferred shares without any further vote or action by our common shareholders.
The voting and other rights of the holders of our common stock will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. Similarly, our board has the right to
issue additional shares of common stock, up to the total number of shares
authorized, without any further vote or action by common shareholders (as long
at the additional shares of common stock are not reserved for any other
purpose), which would have the effect of diluting common shareholders. An
issuance could occur in the context of another public or private offering of
shares of common stock or preferred stock or in a situation where the common
stock or preferred stock is used to acquire the assets or stock of another
company. The issuance of common stock or preferred stock, while providing
desirable flexibility in connection with possible acquisitions, investments and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control.

USE OF PROCEEDS

We expect that our proceeds from the rights offering will be $5
million.

We will use the proceeds to repay a $5 million interest-bearing loan
from Steel Partners and to the extent available, for working capital purposes.
See "Management Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for further discussion of the $5
million interest-bearing loan.

PRICE RANGE OF COMMON STOCK

The Company's common stock is registered on both the NYSE and the
Philadelphia Stock Exchange under the symbol "SL." The following table sets
forth the high and low closing sales prices per share of our common stock for
the periods indicated:

HIGH LOW

Year Ended December 31, 2002:
Fourth Quarter (through October 10, 2002) $ 5.55 $ 4.50
Third Quarter 7.30 5.05
Second Quarter 8.05 6.60
First Quarter 8.30 4.99

Year Ended December 31, 2001:
Fourth Quarter 8.50 3.72
Third Quarter 11.10 5.60
Second Quarter 13.00 11.10
First Quarter 14.99 10.875

Year Ended December 31, 2000:
Fourth Quarter 12.125 10.00
Third Quarter 13.00 9.375
Second Quarter 10.00 8.375
First Quarter 12.625 8.875

The Company paid cash dividends of $.05 per share in November, 2000
and $.05 per share in June, 2000. The Company suspended dividend payments during
2001 and has no present intention of making dividend payments in the foreseeable
future, as, under the terms of the Revolving Credit Facility, the Company is
prohibited from paying dividends.

As of September 30, 2002, there were approximately 870 registered
shareholders.

On October 17, 2001, the Company received official notification from
the NYSE that it was "below criteria" of certain of the NYSE's continued listing
standards, and that, consequently, its stock may be delisted. Pursuant to the
request of the NYSE, the Company submitted a business plan on February 22, 2002
for compliance with the NYSE continued listing standards. The Company is
currently working with the NYSE to resolve this matter and maintain its listing
on the NYSE. There can be no assurance, however, that the Company will be able
to satisfy NYSE requirements and continue to be listed on the NYSE, or in the
event that it cannot continue to be listed on the NYSE, that it will be able to
alternatively list on another exchange.

On October 10, 2002, the last reported sales price for our Common
Stock on the NYSE was $4.50.

THE COMPANY

DESCRIPTION OF BUSINESS

General Development of Business

The Company, through its subsidiaries, designs, manufactures and
markets power electronics, power motion and power protection equipment that is
used in a variety of aerospace, computer, datacom, industrial, medical, telecom,
transportation and 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
("OEMs"), 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.

In 1999, the Company changed the date of its fiscal year-end from
July 31 to December 31, commencing in January 2000. As a result, a transition
period for the five-month period ended December 31, 1999 was previously reported
on a transition report on Form 10-Q and is also presented herein. Consequently,
the consolidated balance sheets have been presented as of December 31, 2001 and
December 31, 2000. The consolidated statements of operations and cash flows
present information for the calendar years ended December 31, 2001 and December
31, 2000, the fiscal year ended July 31, 1999 and the five-month periods ended
December 31, 1999 and December 31, 1998.

On July 27, 1999, pursuant to an Asset Purchase Agreement dated July
13, 1999, Condor D.C. Power Supplies, Inc., a wholly-owned subsidiary of the
Company, acquired certain net operating assets of Todd Products Corporation and
Todd Power Corporation (together, "Todd Products"). The Company paid $7,430,000,
comprised of cash in the amount of $3,700,000 and assumption of debt equal to
approximately $3,730,000. Condor D.C. Power Supplies, Inc. also entered into a
ten-year Consulting Agreement with the chief executive officer of Todd Products
for an aggregate fee of $1,275,000, which is paid in quarterly installments over
three years. Todd Products is a leading supplier of high quality power supplies
to the datacom, telecommunications and computer industries.

In July 2001, the Board of Directors authorized the disposition of
the Company's subsidiary, SL Waber, Inc. ("SL Waber"). On September 6, 2001,
pursuant to an Asset Purchase Agreement dated as of August 29, 2001, the Company
sold substantially all of the assets of SL Waber and all the stock of SL Waber's
subsidiary, Waber de Mexico S.A. de C.V. The Company received cash in the amount
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 $450,000 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 $3,120,000 as of
December 31, 2001. Proceeds from the life insurance policies were received in
December 2001, January 2002 and March 2002 and were used to pay down debt under
the Company's revolving credit facility. 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 upon the sale of the
mortgage note, all of which were used to pay down debt under the Company's
revolving credit facility.

On January 22, 2002, the Company held its annual meeting of
shareholders for the 2001 calendar year. At the 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
(such committee, 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 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. On March 8, 2002, Richard Smith
was elected to the Board of Directors, and on May 23, 2002, Avrum Gray was
elected to the Board of Directors, filling the two vacant directorships.

In 2001, the Company had entered into change-of-control agreements
with Owen Farren, the Chief Executive Officer at that time, David Nuzzo, the
Vice President-Finance and Administration, and Jacob Cherian, the Vice President
and Controller at that time. Following the election of the five new directors as
described above, the Company made payments to such officers under these
change-of-control agreements in the respective amounts of $877,565, $352,556 and
$250,000. Owen Farren's employment with the Company was terminated effective
February 4, 2002. Jacob Cherian resigned effective April 26, 2002. For more
information on the change-of-control agreements, see "Executive Compensation -
Employment Contracts, Termination and Change in Control Arrangements."

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 as
Vice President-Finance and Administration, Treasurer and Secretary. All senior
divisional management teams are continuing in their positions other than Jacob
Cherian, who resigned effective April 26, 2002.

Financial Information About Segments

Financial information about the Company's business segments is
incorporated herein by reference to Note 14 in the Notes to Consolidated
Financial Statements for the year ended December 31, 2001 included herein.

Narrative Description of Business

SEGMENTS

During the fiscal year ended July 31, 1999, the five-month period
ended December 31, 1999 and the year ended December 31, 2000, the Company was
comprised of six reportable business segments: Power Supplies, Power
Conditioning and Distribution Units ("PCDUs"), Motion Control Systems, Electric
Utility Equipment Protection Systems, Surge Suppressors and Other. During the
fiscal year ended July 31, 1998, the Company operated principally in one
business segment; the design, production and marketing of advanced power and
data quality systems. During the year ended December 31, 2001, the Company was
comprised of five business segments: Power Supplies, PCDUs, Motion Control
Systems, Electric Utility Equipment Protection Systems and Other. At year-end
December 2001, the Company changed the composition of its reportable segments to
reflect individual business units, as described below.

CONDOR DC POWER SUPPLIES, INC. ("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
six-month periods ended June 30, 2002 and June 30, 2001, net sales of Condor, as

a percentage of consolidated net sales from continuing operations, were 25% and
40%, respectively. For the years ended December 31, 2001, December 31, 2000 and
the fiscal year ended July 31, 1999, net sales of Condor, as a percentage of
consolidated net sales from continuing operations, were 35%, 42% and 34%,
respectively. For the five-month periods ended December 31, 1999 and December
31, 1998, net sales of Condor, as a percentage of consolidated net sales from
continuing operations, were 43% and 36%, respectively.

TEAL ELECTRONICS CORPORATION ("TEAL") - Teal is a leader in the design and
manufacture of 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. 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 cellular radio systems. For the six-month
periods ended June 30, 2002 and June 30, 2001, net sales of Teal, as a
percentage of consolidated net sales from continuing operations, were 13% and
9%, respectively. For the years ended December 31, 2001, December 31, 2000 and
the fiscal year ended July 31, 1999, net sales of Teal, as a percentage of
consolidated net sales from continuing operations, were 10%, 15% and 17%,
respectively. For the five-month periods ended December 31, 1999 and December
31, 1998, net sales of Teal, as a percentage of consolidated net sales from
continuing operations, were 15% and 17%, respectively.

SL MONTEVIDEO TECHNOLOGY, INC. ("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 six-month periods ended June 30, 2002
and June 30, 2001, net sales of SL-MTI, as a percentage of consolidated net
sales from continuing operations, were 18% and 12%, respectively. For the years
ended December 31, 2001, December 31, 2000 and the fiscal year ended July 31,
1999, net sales of SL-MTI, as a percentage of consolidated net sales from
continuing operations, were 14%, 10% and 17%, respectively. For the five-month
periods ended December 31, 1999 and December 31, 1998, net sales of SL-MTI, as a
percentage of consolidated net sales from continuing operations, were 10% and
18%, respectively.

ELEKTRO-METALL EXPORT GmbH ("EME") - EME is based in Ingolstadt, Germany, with
low-cost manufacturing operations in Paks, Hungary. It is a leader in
electromechanical actuation systems, power drive units and complex wire harness
systems for use in the aerospace and automobile industries. Electromechanical
actuation systems for aerospace and ordnance applications are used in rudder
trim actuation, cargo manipulation and door control. Power drive units are
utilized for aircraft on-board cargo loading systems and electrical seat
actuation systems for aircraft business class seats. Wire harness systems can be
found in aerospace applications, such as passenger entertainment units, and in
automotive applications used in mirror controls and general power wiring systems
throughout the vehicle. For the six-month periods ended June 30, 2002 and June
30, 2001, net sales of EME, as a percentage of consolidated net sales from
continuing operations, were 18% and 20%, respectively. For the years ended
December 31, 2001, December 31, 2000 and the fiscal year ended July 31, 1999,
net sales of EME, as a percentage of consolidated net sales from continuing
operations, were 18%, 15% and 23%, respectively. For the five-month periods
ended December 31, 1999 and December 31, 1998, net sales of EME, as a percentage
of consolidated net sales from continuing operations, were 14% and 26%,
respectively.

RFL ELECTRONICS, INC. ("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 six-month periods
ended June 30, 2002 and June 30, 2001, net sales of RFL, as a percentage of
consolidated net sales from continuing operations, were 24% and 17%,
respectively. For the years ended December 31, 2001, December 31, 2000 and the
fiscal year ended July 31, 1999, net sales of RFL, as a percentage of
consolidated net sales from continuing operations, were 21%, 17%, and 6%,
respectively. For the five-month periods ended December 31, 1999 and December
31, 1998, net sales of RFL, as a percentage of consolidated net sales from
continuing operations, were 17% and 0%, respectively.

SL SURFACE TECHNOLOGIES, INC. ("SURFTECH") - SurfTech produces industrial
coatings and platings for equipment in the corrugated paper and
telecommunications industries. For the six-month periods ended June 30, 2002 and
June 30, 2001, net sales of SurfTech, as a percentage of consolidated net sales
from continuing operations, were 2% and 2%, respectively. For the years ended
December 31, 2001, December 31, 2000 and the fiscal year ended July 31, 1999,
net sales of SurfTech, as a percentage of consolidated net sales from continuing
operations, were 2%, 2% and 3%, respectively. For the five-month periods ended
December 31, 1999 and December 31, 1998, net sales of SurfTech, as a percentage
of consolidated net sales from continuing operations, were 2% and 3%,
respectively.

SL WABER, INC. - SL Waber manufactured surge suppressors that were sold to
protect computers, audiovisual and other electronic equipment from sudden surges
in power. These products were sold to OEM customers, as well as to distributors
and dealers of electronics and electrical supplies, retailers and wholesalers of
office, 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. Since the decision was made to sell SL Waber in June 2001, it
has been reported on the Company's financial statements as a discontinued
operation for all periods presented. For the years ended December 31, 2001,
December 31, 2000 and the fiscal year ended July 31, 1999, net sales of SL Waber
were $10.3 million, $19.3 million, and $36.4 million, respectively. For the
five-month periods ended December 31, 1999 and December 31, 1998, net sales of
SL Waber were $11.9 million and $17.0 million, respectively.

RAW MATERIALS

Raw materials are supplied by various domestic and international
vendors. In general, availability for 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 2001, 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.

SEASONALITY

Generally, seasonality is not a 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 Teal, SL-MTI, EME,
RFL and SurfTech has certain major customers, the loss of any of which would
have a material adverse effect on such entity.

BACKLOG

Backlog at March 1, 2002, March 9, 2001 and March 9, 2000, was
$53,246,000, $62,242,000 and $60,693,000, respectively. The lower backlog at
March 1, 2002, as compared to March 9, 2001, was principally the result of
substantially decreased orders from OEMs in the telecommunications and
semiconductor industries, offset in part by increased orders from aerospace
customers.

COMPETITIVE CONDITIONS

The Company's businesses are in active competition with domestic and
foreign companies, some with national and international name recognition,
offering similar products or services, and with companies producing alternative
products appropriate for the same uses. In addition, Condor has experienced
significant off-shore competition for certain products in certain markets.
Currently, the Company's businesses are sourcing many components and products
outside of the United States. The uncertain commercial aerospace market as a
result of the terrorist attacks of September 11, 2001 has also created more
competitive conditions in that industry. 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, innovation, delivery and price.

ENVIRONMENTAL

The Company (together with the industries in which it operates or
has operated) is subject to United States, Mexican, Hungarian and German
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
industries 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. For additional information related to
environmental issues, see "Legal Proceedings."

EMPLOYEES

As of December 31, 2001 and June 30, 2002, the Company had
approximately 1,800 and 1,973 employees, respectively. Of these employees,
approximately 160 and 191, respectively, are 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 or owned by the Company in Mexicali and Matamoros, Mexico;
Ingolstadt, Germany; and Paks, Hungary. 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. During the
year ended December 31, 2001, the Company manufactured products in two
additional facilities in Mexico. The Condor plant in Reynosa, Mexico was closed
in March 2002, and the SL Waber plant in Nogales, Mexico was sold in September
2001.

Generally, the Company's sales are priced in United States dollars
and European Union euros (German marks prior to January 1, 2002), and its costs
and expenses are priced in United States dollars, Mexican pesos, European Union
euros (German marks prior to January 1, 2002) and Hungarian forints.
Accordingly, the competitiveness of 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 27%, 23%, and 27% of net sales from continuing
operations for the years ended December 31, 2001 and December 31, 2000, and the
fiscal year ended July 31, 1999, respectively. Foreign net sales comprised 21%
and 29% of net sales from continuing operations for the five-month periods ended
December 31, 1999 and December 31, 1998, respectively.

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, European Union euro (German mark prior to January 1,
2002) and Hungarian forint. At December 31, 2001, the Company had net
liabilities of $241,000 subject to fluctuations in the value of the Mexican
peso, net assets of $4,578,000 subject to fluctuations in the value of the
German mark and net assets of $507,000 subject to fluctuations in the value of
the Hungarian forint. Fluctuations in the value of the Mexican peso, German
mark, and Hungarian forint were not significant in 1999, 2000 or 2001. However,
there can be no assurance that the value of the Mexican peso, European Union
euro or Hungarian forint will continue to remain stable.

EME manufactures all of its products in Germany or Hungary and
incurs its costs in European Union euros (German marks prior to January 1, 2002)
or Hungarian forints. EME's sales are priced in European Union euros (German
marks prior to January 1, 2002) and United States dollars. Condor manufactures
substantially all of its products in Mexico and incurs its manufacturing labor
costs and supplies in Mexican pesos. SL-MTI manufactures an increasing amount of
its products in Mexico and incurs related labor costs and supplies in Mexican
pesos. Both Condor and SL-MTI price their sales in United States dollars. EME
maintains its books and records in European Union euros (German marks prior to
January 1, 2002), and its Hungarian subsidiary maintains its books and records
in Hungarian forints. 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 14 and 15 in the Notes
to Consolidated Financial Statements for the year ended December 31, 2001
included herein.

RECENT DEVELOPMENTS

On August 8, 2002, the Company announced that it had retained
Imperial Capital, LLC to act as its financial advisor. Imperial Capital, LLC is
spearheading the Company's initiative to explore a sale of some or all of its
businesses and has also assisted management in its ongoing efforts to secure new
long term debt to refinance the Company's current revolving credit facility.

ADDITIONAL INFORMATION

Additional information regarding the development of the Company's
businesses during 2001 is contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included herein.

DESCRIPTION OF PROPERTY

Set forth below are the properties where the Company conducts business as of
September 30, 2002.

Approx. Owned or Leased
Square And
Location General Character Footage Expiration Date
-------- ----------------- ------- ---------------

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

Matamoros, Mexico Manufacture of precision motors 15,000 Leased - 11/05/03
(SL-MTI)

Oxnard, CA Manufacture and distribution of 36,480 Leased - 02/28/03
power supply products (Condor)

Mexicali, Mexico Manufacture and distribution of Leased -
power supply products (Condor) 40,000 monthly
21,150 monthly

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

Ingolstadt, Germany Manufacture of actuation systems and 51,021 Owned
power distribution products (EME)

Paks, Hungary Manufacture of power distribution 12,916 Owned
products and wire harness systems
(EME)

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

Camden, NJ Industrial surface finishing 15,800 Owned
(SurfTech)

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

Mt. Laurel, NJ Corporate office (Other) 4,200 Leased - 11/30/02

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.

LEGAL PROCEEDINGS

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,
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.

The Company's subsidiary, SL-MTI is currently defending a cause of
action, brought against it in the fall of 2000 in 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. The high precision motor was developed
for use in an aircraft actuation system intended for use by Vickers Corporation.
The complaint seeks compensatory damages of approximately $3,900,000. Both
parties filed, briefed and argued cross-motions for summary judgement. On July
18, 2002, Eaton's motion for partial summary judgement was granted to the
limited extent that the court found that SL-MTI sold motors to Eaton with an
express warranty and an implied warranty of merchantability and the motion was
denied in all other respects, the court indicating that the nature and extent of
those warranties would have to be decided by the jury at trial. Trial is
currently scheduled for October 28, 2002. The Company continues to believe that
it has strong defenses to Eaton's claims and intends to pursue them vigorously.

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
containment plume which has affected the Puchack Wellfield in Pennsauken, New
Jersey (which supplies Camden, New Jersey). Three other actions have been
initiated from the underlying directive. The first is Supplemental Directive No.
1 issued by 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 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.
The third matter is a Spill Act Directive by NJDEP to SurfTech alone, regarding

similar matters at its site. 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 ECRA at the same site.

On June 12, 2002, the Company and its subsidiary 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
contaminated water distributed from the Puchack, Wellfield in Pennsauken, New
Jersey. SurfTech once operated a chrome-plating facility in Pennsauken.

With regard to the $8,655,000 amount discussed in the preceding
paragraphs, in the Company's view it is not appropriate to consider that amount
as "potential cost reimbursements." The SurfTech site, which is the subject of
these actions, 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 $8,655,000 claim as well as the class action since technical data
generated as part of previous remedial activities indicate that there is no
offsite migration of containments 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 as well as the claims alleged in the
class action plaintiff's complaint, and any material exposure is unlikely.

In May 2000, the Company discovered evidence of possible soil
contamination at its facility in Auburn, New York. The New York State Department
of Environmental Controls has been contacted and an investigation is currently
underway. Based upon the preliminary evidence, the Company does not believe that
it will incur material remediation costs at this site.

In December 2001, the Company received notice from the Connecticut
Department of Environmental Protection of an administrative hearing to determine
responsibility for contamination at a former industrial site located in New
Haven, Connecticut. The Company has requested an extension of time to determine
the nature of the alleged contamination and the extent of the Company's
responsibility. It is still very early in the investigation; however, based upon
the preliminary investigation, the Company does not believe that remediation of
this site would have a material adverse effect on its business or operations.

The Company is investigating a possible ground water containment
plume on its property in Camden, New Jersey. While a final determination of the
extent of the contamination has not been made, the Company has been informed
that the cost to remediate the property should not exceed $500,000. The Company
recorded a provision for this amount during the first quarter of 2002.

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 $2,400,000 prior to
fiscal 1998 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. In addition, the Company received $100,000 during fiscal 1998,
1999, 2000 and 2001, as stipulated in the settlement agreement negotiated with
one of the three insurers.

On August 9, 2002, the Company received a "Demand for Arbitration"
with respect to the claim of a former vendor of SL Waber. The claim concerns a
dispute between SL Waber and the Company and an electronics manufacturer based
in Hong Kong for alleged failure to pay for goods under a Supplier Agreement.
The Company believes this claim is without merit and has brought counter claims
against the vendor and will vigorously pursue defenses with respect to these
claims.

Loss contingencies include potential obligations to investigate and
eliminate or mitigate the affects 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 $290,000. 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 11 in the Notes to the Consolidated Financial
Statements included herein.

CAPITALIZATION

The following table sets forth our summary capitalization as of June
30, 2002, as adjusted to give pro- forma effect to the sale of _____ million
shares of our common stock pursuant to the rights offering. This table should be
read in conjunction with our financial statements and notes thereto incorporated
by reference into this prospectus.

As Adjusted for the Rights
Offering
--------------------------------
$___ Million
Actual Investment Pro Forma
------ ------------ ---------
(in thousands)

Cash and cash equivalents............................................... $ 2,722
=======
Total debt
Short-term bank debt.................................................... $ 2,534
Long-term debt due within one year................................ $20,837
Long-term debt less portion due within one year................... $62

Total debt.................................................. $23,433

Shareholders' equity:
Preferred stock, no par value, authorized,
6,000,000 shares, none issued....................................
Common stock, $.20 par value, authorized
25,000,000 shares, issued 8,298,000 and as
adjusted, ________ shares, respectively........................... 1,660
Capital in excess of par value.................................... 38,788
Retained earnings................................................. 8,852
Accumulated other comprehensive income
(loss)........................................................... 397
Treasury stock, at cost, 2,394,000 and 2,587,000
shares, respectively.............................................. (15,216

Total shareholders' equity.................................. 34,481

Total capitalization.................................................... $57,914

Ratio of total debt-to-total capitalization............................. 40.5%

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the consolidated financial statements and notes thereto,
and other financial information included elsewhere in this prospectus. Our
consolidated statements of operations data set forth below for the years ended
December 31, 2001 and 2000 and July 31, 1999, and for the five months ended
December 31, 1999 and 1998 (unaudited) and the consolidated balance sheet data
as of December 31, 2001 and 2000 have been derived from our audited consolidated
financial statements which are included elsewhere in this prospectus. The
consolidated statement of operations data set forth below for the years ended
July 31, 1998 and 1997 and the consolidated balance sheet data as of December
31, 1999 and 1998 (unaudited) and July 31, 1999, 1998 and 1997 have been derived
from our audited consolidated financial statements which are not included in
this prospectus. The balance sheet data and the statement of operations data as
of and for the six months ended June 30, 2002 and 2001 have been derived from
our unaudited financial statements, included elsewhere in this prospectus, which
we believe have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring
adjustments, which we consider necessary for a fair presentation of the selected
financial data shown.

Six Months Six Months Twelve Months
Ended June Ended June 30, Ended
30, 2002 2001 December 31,
(Unaudited) (Unaudited) 2001
--------------- ---------------- ---------------
(amounts in thousands except per share data)
--------------- ---------------- ---------------
Net sales (1)..................... $67,356 $70,061 $138,467
Income (loss) from continuing
operations........................ $(358) $(2,215) $(6,703)
Income (loss) from discontinued
operations........................ $313 $(2,618) $(3,947)
Net income (loss) (2)............. $(45) $(4,833) $(10,650)
Diluted net income (loss) per
common share ..................... $ (0.01) $(0.85) $(1.87)
Shares used in computing diluted
net income (loss) per common
share............................. 5,839 5,690 5,698
Cash dividend per
common share...................... -0- -0- -0-
Year-end financial position
Working capital................... $4,956 $(8,279) $3,476
Current ratio(3).................. 1.1 0.9 1.1
Total assets...................... $88,125 $110,143 $107,758
Long-term debt.................... $62 $1,009 $1,009
Shareholders' equity.............. $34,481 $39,148 $33,204
Book value per share.............. $5.84 $6.86 $5.81
Other
Capital expenditures(4)........... $1,120 $1,725 $2,342
Depreciation and
Amortization................... $1,744 $2,313 $4,587

Five Months
Twelve Months Twelve Twelve Twelve Months Five Months Ended December
Ended December Months Ended Months Ended Ended July Ended December 31, 1998
31, 2000 July 31, 1999 July 31, 1998 31, 1997 31, 1999 (Unaudited)
---------------- -------------- -------------- --------------- ---------------- --------------

---------------- -------------- -------------- --------------- ---------------- --------------
Net sales (1)..................... $148,405 $88,694 $71,918 $68,044 $59,032 $32,809
Income (loss) from continuing
operations... $6,423 $5,799 $4,383 $6,720 $2,789 $1,258
Income (loss) from discontinued
operations........................ $(4,723) $(393) $930 $1,095 $(3,473) $703
Net income (loss) (2)............. $1,700 $5,406 $5,313 $7,815 $(684) $1,961
Diluted net income (loss) per
common share ...... $0.30 $0.92 $0.90 $1.30 $(0.12) $0.33
Shares used in computing diluted
net income (loss) per common
share............. 5,757 5,876 5,897 6,021 5,624 5,886
Cash dividend per
common share............... $0.10 $0.09 $0.08 $0.07 $0.05 $0.04
Year-end financial position
Working capital............. $31,180 $24,812 $21,344 $17,399 $33,042 $22,145
Current ratio(3).............. 2.3 1.9 2.1 1.8 2.2 2.1
Total assets................. $113,481 $112,686 $80,915 $66,804 $117,050 $78,929
Long-term debt............. $36,533 $31,984 $13,283 $700 $39,245 $12,255
Shareholders' equity..... $43,350 $42,842 $38,345 $36,492 $42,072 $40,546
Book value per share..... $7.69 $7.61 $6.84 $6.27 $7.48 $7.16
Other
Capital expenditures(4)... $2,563 $1,901 $2,029 $1,327 $849 $1,247
Depreciation and
Amortization................ $4,379 $3,092 $2,335 $2,102 $1,830 $1,246

(1) During 2001, the Company sold SL Waber and, accordingly, the operations of
SL Waber have been accounted for as discontinued operations in all periods
presented. The prior years have been restated to reflect this accounting
treatment.

(2) Calendar 2001 includes pre-tax 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, inventory write-offs of $50,000, and restructuring
and intangible asset impairment charges of $185,000 and $125,000, respectively,
related to SurfTech.
Calendar 2000 includes pre-tax income of $875,000 related to the settlement of a
class action suit against one of the Company's insurers, 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. The five-month
period ended December 31, 1999 includes pre-tax restructuring costs, inventory
write-downs and loss on commitments of $4,273,000 related to SL Waber, and a
pre-tax gain of $1,812,000 related to the demutualization of one of the
Company's life insurance carriers.

(3) The current ratio for 2001 includes all debt classified as current, due to
the December 31, 2002 maturity date of the Revolving Credit Facility (see Item 7
- Financial Condition)

(4) Excludes assets acquired in business combinations.

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

CRITICAL ACCOUNTING POLICIES

In December 2001, the Securities and Exchange Commission ("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. Not all of these
significant accounting policies require management to make difficult, subjective
or complex judgments or estimates. However, the following policies could be
deemed to be critical within the SEC definition.

Revenue Recognition

Revenue from product sales is generally recognized at the time the
product is shipped, with provisions established for estimated product returns.
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 to its customers 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; however, certain
judgments affect the application of its revenue policy. 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 its 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 (i.e. higher than
expected defaults or an unexpected material adverse change in a major customer's
ability to meet its financial obligation to the Company), the Company's
estimates of the recoverability of amounts due the Company could be reduced by a
material amount.

Inventories

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 the Company writes
down the related inventory 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 its current value, the Company 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 bases 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 generally
accepted guidelines regarding 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 the Company establishes a valuation allowance
or increases this allowance in a period, it must include an expense 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 net deferred tax assets. As of December 31,
2001, the Company has recorded a valuation allowance of $1,677,000, due to
uncertainties related to its ability to utilize some deferred tax assets,
primarily consisting of certain net operating loss carryforwards for state tax
purposes 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 asset as of December 31, 2001 was $8,314,000,
net of a valuation allowance of $1,677,000. The carrying value of the Company's
net deferred tax assets assumes that it 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 realizability of
the deferred tax assets quarterly, and assesses the need for additional
valuation allowances quarterly.

Legal Contingencies

The Company is currently involved in certain legal proceedings. As
discussed in Note 11 in the Notes to the Consolidated Financial Statements for
the year ended December 31, 2001 included herein, the Company has accrued for
its estimate of the probable costs for the resolution of these claims. This
estimate has been developed in consultation with outside counsel handling the
defense of these matters 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, of the effectiveness of
these strategies, related to these proceedings.

Impairment of Long-lived Assets

The Company's long-lived assets include goodwill and other
intangible assets. At December 31, 2001, the Company had a book value of
$14,799,000 for goodwill and other intangible assets, accounting for
approximately 14% of the Company's total assets. The realizability of the
goodwill and intangible assets is dependent on the performance of the
subsidiaries and businesses that the Company has acquired.

In assessing the recoverability of the Company's goodwill and other
intangibles, the Company must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of the respective assets. If

these estimates or related assumptions change in the future, the Company may be
required to record impairment charges for these assets not previously recorded.
During the year ended December 31, 2001, the Company determined that the value
of the intangible assets associated with the 1999 acquisition of Todd Products
had been impaired as a result of the severe downturn in the market for
telecommunications products. These intangible assets consisted of goodwill and a
consulting agreement with net book values of $3,179,000 and $966,000,
respectively. Accordingly, the Company has recorded a charge in the amount of
$4,145,000 in recognition of this impairment.

On January 1, 2002, the Company adopted certain provisions of
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." In connection with the adoption of the remaining
provisions of SFAS No. 142, the Company will be required to analyze its goodwill
for impairment on an annual basis and between annual tests in certain
circumstances. Goodwill and intangible assets that have indefinite useful lives
will not be amortized.

Determining Functional Currencies for the Purpose of Consolidation

The Company has several foreign subsidiaries which together account
for approximately 27% of its net sales from continuing operations, 25% of its
assets and 18% of its total liabilities for the year ended December 31, 2001.

In preparing the consolidated financial statements, the Company is
required to translate the financial statements of the foreign subsidiaries from
the currency in which they keep their accounting records, generally the local
currency, into United States dollars. This process results in exchange gains and
losses which, under the relevant accounting guidance, are either included within
the consolidated statement of operations or as a separate part of net equity
under the caption "Accumulated other comprehensive (loss) income."

Under the relevant accounting guidance the treatment of these
translation gains or losses is dependent upon management's determination of the
functional currency of each subsidiary. The functional currency is determined
based on management's judgment and involves consideration of all relevant
economic facts and circumstances affecting the subsidiary. Generally, the
currency in which the subsidiary transacts a majority of its transactions,
including billings, financing, payroll and other expenditures, would be
considered the functional currency, but any dependency upon the parent and the
nature of the subsidiary's operations must also be considered.

If any subsidiary's functional currency is deemed to be the local
currency, then any gain or loss associated with the translation of that
subsidiary's financial statements is included in the cumulative translation
adjustments. However, if the functional currency is deemed to be the United
States dollar, then any gain or loss associated with the translation of these
financial statements would be included in the consolidated statement of
operations. If the Company disposes of any of its subsidiaries, any cumulative
translation gains or losses would be realized into the consolidated statement of
operations. If there has been a change in the functional currency of a
subsidiary to the United States dollar, any translation gains or losses arising
after the date of change would be included within the consolidated statement of
operations.

The magnitude of these gains or losses is dependent upon movements
in the exchange rates of the foreign currencies in which the Company transacts
business against the United States dollar. These currencies include the European
Union euro, Hungarian forint and Mexican peso. Any future translation gains or
losses could be significantly higher than those experienced historically. In
addition, if there is a change in the functional currency of one of the
subsidiaries, the Company would be required to include any translation gains or
losses from the date of change in its consolidated statement of operations.

Environmental Expenditures

industries 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.

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, which do not contribute to future revenues,
are generally expensed. 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, nor are they
reduced by potential claims for recovery from the Company's 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, which
contain accounting policies and other disclosures required by generally accepted
accounting principles.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2002 Compared With Six Months Ended June 30, 2001

The table below shows the comparison of net sales from continuing
operations for the six months ended June 30, 2002 and June 30, 2001:

Increase/ Increase/
(Decrease) over (Decrease) over Six Months Six Months
same quarter same quarter ended ended
Last year last year June 30, 2002 June 30, 2001
------------------------------------------------------------------------------
Percent Amount Amount Amount
------------------------------------------------------------------------------
(in thousands)
Condor (39.1) $(11,037) $ 17,197 $ 28,234
Teal 46.2 2,874 9,089 6,215
SL-MTI 43.9 3,647 11,950 8,303
EME (12.8) (1,744) 11,899 13,643
RFL 31.1 3,804 16,033 12,229
SurfTech (17.3) (249) 1,188 1,437
--------------------------------------------------------------------------------
TOTAL (3.9)% $(2,705) $67,356 $70,061
--------------------------------------------------------------------------------

Consolidated net sales from continuing operations for the six months
ended June 30, 2002 decreased by $2.7 million, or 4%, compared to the same
period last year. This decrease was due mainly to decreases at Condor of $11
million, or 39%, and at EME of $1.7 million, or 13%. These decreases were
partially offset by relatively strong performances by the other business
segments except SurfTech, which represents only 2% of consolidated sales. Condor
sales were adversely impacted by its reduction of a significant amount of its
products offered under its telecommunications-related product line. EME's sales
were principally affected by lower sales in the European commercial aerospace
market.

The Company realized an operating loss of $101,000 for the six
months ended June 30, 2002, as compared to an operating loss of $2,094,000 for
the corresponding prior year period. During the six months ended June 30, 2002,
the Company recorded (a) a charge of $265,000 as a result of the restructuring
charges recorded at Condor, (b) special charges of $1,834,000 related to
change-of-control and proxy costs and (c) a $500,000 addition to the reserve for
environmental matters. Without these charges the Company would have had an

operating profit of $2,498,000. In the comparable period last year the Company
recorded restructuring charges of $1,108,000 and an inventory write down of
$2,890,000. Without these charges the Company would have had an operating profit
of $1,904,000. Included in "Other" are the special charges, the environmental
charge, additional costs for professional fees and other costs incurred, which
are Company related costs not specifically allocated to continuing operations.
The current period six month operating loss was positively affected by the
implementation of SFAS No. 142, which required the discontinuation of goodwill
amortization effective January 1, 2002 (see Note 5 to the Consolidated Financial
Statements for the six months ended June 30, 2002 included herein). Related
amortization charged to last year's operating costs was $303,000.

Cost of products sold for the six months ended June 30, 2002
decreased by 6%, as compared to the same period last year. As a percentage of
net sales, cost of products sold for the current six-month period was 66%, as
compared to 68% during the same period last year. All of the reporting business
unit's cost of sales percentages were relatively constant as compared to last
year, except Teal. Teal's cost of sales went from 55% for the six-month period
ended June 2001 to 66% for the six-month period ended June 2002. Teal's increase
in cost was due to product mix. During the period Teal began a new major program
with one customer, which included volume price discounts and had significant
sales and increased production prototypes.

Engineering and product development expenses for the six months
ended June 30, 2002 decreased 12%, as compared to the same period last year, due
primarily to the consolidation of engineering facilities at Condor. As a
percentage of net sales, engineering and product development expenses for the
six months ended June 30, 2002 were 6%, as compared to 7% for the same period
last year.

Selling, general and administrative expenses for the six months
ended June 30, 2002 increased 10%, as compared to the same period last year. As
a percentage of net sales, selling, general and administrative expenses for the
six months ended June 30, 2002 were 22%, as compared to 19% for the same period
last year. The percentage increase was primarily due to lower sales and a
$500,000 addition to the reserve for environmental matters recorded in the first
quarter of 2002. Without the $500,000 addition to the environmental reserve,
selling, general and administrative expenses would have been 21% of net sales.

Depreciation and amortization expenses for the six months ended June
30, 2002 decreased by $569,000, or 25%, due to the reduced fixed asset base and
intangible impairment write-offs at Condor in 2001. Also effective January l,
2002, the Company adopted SFAS No. 142 and implemented certain provisions of
this statement, specifically the discontinuance of goodwill amortization, which
was $303,000 for the six months, ended June 30, 2001 (see Note 5 to the
Consolidated Financial Statements for the six months ended June 30, 2002
included herein).

Interest income for the six months ended June 30, 2002 decreased by
$39,000, as compared to the same period last year. Interest expense for the
six-month period decreased by $475,000, or 33%, due primarily to the significant
reduction of debt as compared to the prior year period.

The effective tax benefit rate for the six months ended June 30,
2002 was 62%, as compared to a benefit of 34% for the same period last year. The
effective tax rate change primarily relates to the recovery of tax benefits not
previously recognized.

Twelve Months Ended December 31, 2001 ("2001") Compared With Twelve Months Ended
December 31, 2000 ("2000")

Consolidated net sales in 2001 of $138,467,000 decreased
approximately 7% ($9,938,000), as compared to consolidated net sales in 2000.
Consolidated net sales for 2001 and 2000 do not include net sales of $10,316,000
and $19,341,000, respectively, relating to SL Waber, since SL Waber's operating
results are a part of the net loss from discontinued operations. Net loss in
2001 was $10,650,000, or $1.87 per diluted share, as compared to net income in
2000 of $1,700,000, or $0.30 per diluted share. The net loss in 2001 included
$4,270,000 relating to the impairment of intangible assets of Condor and
SurfTech, $3,868,000 for restructuring expenses of Condor and SurfTech,
inventory write-downs of $2,940,000 for Condor and SurfTech and a $3,947,000 net
loss from SL Waber (a discontinued operation).

Condor's net sales in 2001 decreased approximately 22% ($13,825,000)
and its operating income decreased approximately 326% ($13,695,000), as compared
to net sales and operating income in 2000. Contributing to the decrease in net
sales was the major downturn in the market for telecommunication products,
resulting in significantly lower sales from the Todd Products division of
Condor. The decrease in operating income was primarily the result of the
substantial decrease in sales of telecommunications products, and includes
charges in connection with the write-down of telecommunications-related
inventory in the amount of $2,890,000, the restructuring expenditures to close
two facilities and lay-off 810 employees in the amount of $3,683,000 and the
impairment of intangible assets related to the 1999 Todd Products acquisition in
the amount of $4,145,000.

Teal's net sales in 2001 decreased approximately 39% ($8,512,000)
and operating income decreased approximately 84% ($3,200,000), as compared to
2000. The decrease in net sales and operating income was due to the continued
depressed demand for semiconductor manufacturing equipment.

EME's net sales in 2001 increased approximately 14% ($3,068,000) and
operating income increased approximately 51% ($1,070,000), as compared to net
sales and operating income in 2000. Contributing to the increased net sales and
operating income were increased sales of actuation systems to the aerospace
industry.

SL-MTI's net sales in 2001 increased approximately 36% ($5,061,000)
and operating income increased approximately 92% ($949,000), as compared to net
sales and operating income in 2000. Contributing to the increased net sales and
operating income were increased sales of precision motor products to the
aerospace industry.

RFL's net sales in 2001 increased approximately 17% ($4,021,000) and
operating income increased approximately 28% ($707,000), as compared to net
sales and operating income in 2000. Contributing to the increased net sales and
operating income were increased sales of teleprotection equipment and systems to
the electric utility industry.

SurfTech's net sales in 2001 increased approximately 9% ($249,000)
and the operating loss increased approximately 874% ($1,005,000), as compared to
net sales and operating loss in 2000. Contributing to the increased net sales
and decreased operating income was the continued development of its coatings and
platings sales and operations supporting the telecommunications industry, and
includes charges in connection with the write-down of inventory of $50,000 and
restructuring and impairment charges of $185,000 and $125,000, respectively.

SL Waber's net sales in 2001 decreased approximately 47%
($9,025,000) as compared to 2000. This subsidiary was sold in September 2001 and
is reported as discontinued operations for all periods presented.

COST OF SALES

As a percentage of net sales, cost of products sold, including
inventory charges and losses on commitments, in 2001 was approximately 70%, as
compared to approximately 66% in 2000. The percentage increase was a result of
(i) product mix, which included a higher percentage of sales of lower margin
products to the aerospace, medical and industrial markets; and (ii) an increase
in cost of sales due to a reserve at Condor of $2,890,000 for excess and
obsolete inventory relating to the telecommunications industry.

ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES

Engineering and product development expenses in 2001 were
$8,768,000, a decrease of approximately 9% ($903,000), as compared to 2000. As a
percentage of net sales, engineering and product development expenses in 2001
were 6%, as compared to 7% in 2000. During 2001, decreases were primarily due to
lower investments made by the operating divisions.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses in 2001 were
$28,405,000, an increase of approximately 13% ($3,236,000), as compared to 2000.
As a percentage of net sales, selling, general and administrative expenses in
2001 and 2000 were approximately 21% and 17%, respectively. The increase in 2001
was mainly due to bank charges incurred as a result of the Company's amendment
to its Revolving Credit Facility and default of financial covenants thereunder,
expenses associated with the contested election of directors and legal fees and
consulting costs related to the restructuring of Condor.

DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses in 2001 were $4,587,000, an
increase of approximately 5% ($208,000), as compared to 2000. The increase in
2001 was primarily related to the increased base of property, plant and
equipment depreciated during the year.

RESTRUCTURING COSTS AND IMPAIRMENT OF INTANGIBLES

During 2001, the Company recognized $8,138,000 of restructuring and
impairment costs that were related to Condor ($7,828,000), and SurfTech
($310,000). For additional information related to restructuring costs and
impairment charges, see Note 16 in the Notes to Consolidated Financial
Statements for the year ended December 31, 2001 included herein.

OTHER INCOME (EXPENSE)

In 2001, interest income remained consistent with 2000. Interest
expense in 2001 increased, as compared to 2000, primarily due to the higher
levels of borrowing during 2001.

TAXES

The effective tax rate in 2001 was (38%), as compared to 36% in
2000. See Note 3 in the Notes to Consolidated Financial Statements for the year
ended December 31, 2001 included herein.

Twelve Months Ended December 31, 2000 ("2000") Compared With Twelve Months Ended
July 31, 1999 ("1999")

Consolidated net sales from continuing operations in 2000 of
$148,405,000 increased approximately 67% ($59,711,000), as compared to
consolidated net sales in fiscal 1999. Consolidated net sales for 2000 included
twelve months of RFL's net sales of $24,426,000 and twelve months of Todd
Products' net sales of $26,412,000. Consolidated net sales in fiscal 1999 of
$88,694,000 included approximately three months of RFL's net sales of
$5,274,000. Net income in 2000 was $1,700,000, or $0.30 per diluted share, as
compared to net income in fiscal 1999 of $5,406,000, or $0.92 per diluted share.

Condor's net sales in 2000 increased approximately 106%
($32,139,000) and its operating income decreased approximately 27% ($1,573,000),
as compared to net sales and operating income in fiscal 1999. Contributing to
the increase in net sales was the inclusion of twelve months of Todd Products'
net sales of $26,412,000. The decrease in operating income in 2000 resulted
primarily from costs incurred with the integration of the operations of Todd
Products during the year.

Teal's net sales in 2000 increased approximately 44% ($6,676,000)
and operating income increased approximately 91% ($1,816,000), as compared to
fiscal 1999. The increase in net sales and operating income was due to increased
demand for semiconductor manufacturing equipment and higher margin products.

EME's net sales in 2000 increased approximately 13% ($2,549,000) and
operating income increased approximately 26% ($428,000), as compared to net
sales and operating income in fiscal 1999. Contributing to the increased net
sales and operating income were increased sales of actuation systems to the
aerospace industry.

SL-MTI's net sales in 2000 decreased approximately 6% ($880,000) and
operating income decreased approximately 16% ($191,000), as compared to net
sales and operating income in fiscal 1999. Contributing to the decreased net
sales and operating income were decreased sales of precision motor products to
the aerospace industry.

RFL's net sales in 2000 increased approximately 363% ($19,152,000)
and operating income increased approximately 395% ($2,013,000), as compared to
net sales and operating income in fiscal 1999. Contributing to the increased net
sales and operating income was inclusion of twelve months of net sales for RFL
in 2000, as compared to approximately three months in fiscal 1999.

SurfTech's net sales in 2000 increased approximately 3% ($75,000)
and the operating loss increased approximately 1,250% ($125,000), as compared to
net sales and operating income in 1999. Contributing to the increased net sales
and decreased operating income was the development of its coatings and platings
sales and operations supporting the telecommunications industry.

SL Waber's net sales in 2000 decreased approximately 47%
($17,093,000) as compared to fiscal 1999. This subsidiary was sold in September
2001 and is reported in these accounts as discontinued operations.

COST OF SALES

As a percentage of net sales, cost of products sold in 2000 was
approximately 66%, as compared to approximately 63% in fiscal 1999. The
percentage increase was a direct result of product mix, which included a higher
percentage of sales of lower margin products such as actuators and power
distribution systems.

ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES

Engineering and product development expenses in 2000 were
$9,671,000, an increase of approximately 61% ($3,665,000), as compared to fiscal
1999. As a percentage of net sales, engineering and product development expenses
in 2000 were approximately 6%, as compared to approximately 7% in fiscal 1999.
During 2000, increased expenses were primarily related to additional investments
made by Condor, SL-MTI and EME, as well as additional investments made in
connection with the RFL and Todd Products acquisitions.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses in 2000 were
$25,169,000, an increase of approximately 87% ($11,721,000), as compared to
fiscal 1999. As a percentage of net sales, selling, general and administrative
expenses in 2000 were approximately 17%, as compared to 15% in fiscal 1999. This
includes a reversal of a $650,000 reserve for environmental penalties in 2000,
the chance of payment of which is remote, based on consultation with legal
counsel. The increase was mainly due to the inclusion of the twelve-months
results of RFL and Todd Products.

DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses in 2000 were $4,379,000, an
increase of approximately 42% ($1,287,000) as compared to fiscal 1999. The
increase in 2000 was primarily related to the depreciation of property, plant
and equipment, the amortization of computer software and the amortization of
intangible assets associated with the acquisitions of RFL and Todd Products.

INCOME FROM CLASS ACTION SUIT

During 2000, the Company received $875,000 in settlement of a class
action suit against one of its life insurance carriers.

OTHER INCOME (EXPENSE)

For the year 2000, interest income increased, as compared to fiscal
1999, primarily due to higher cash balances maintained at EME. Interest expense
in 2000 increased, as compared to fiscal 1999, primarily due to the higher
levels of borrowing during 2000 due to the acquisition of RFL and Todd Products.

TAXES

The effective tax rate in 2000 was 36%, as compared to 42% in fiscal
1999. This decrease was primarily due to non-taxable income from the settlement
of a life insurance class action suit in 2000.

Five Month Period Ended December 31, 1999 ("Short Year 1999") Compared With Five
Month Period Ended December 31, 1998 ("Short Year 1998")

Consolidated net sales in Short Year 1999 were $59,032,000, an
increase of approximately 80% ($26,223,000), as compared to Short Year 1998.
Consolidated net sales in Short Year 1999 included five months of RFL's net
sales of $10,073,000 and five months of Todd Product's net sales of $11,458,000.
RFL and Todd Products were acquired after Short Year 1998 and therefore Short
Year 1998 does not include the results of the two acquisitions. Net loss in
Short Year 1999 was $684,000, or $0.12 per diluted share, as compared to net
income in Short Year 1998 of $1,961,000, or $0.33 per diluted share.

Condor's net sales in Short Year 1999 increased approximately 115%
($13,563,000) and its operating income decreased approximately 8% ($171,000), as
compared to net sales and operating income in Short Year 1998. Contributing to
the increase in net sales was the addition of net sales from the acquisition of
Todd Products. The decrease in operating income resulted from costs associated
with the integration of Todd Products during Short Year 1999.

Teal's net sales in Short Year 1999 increased approximately 54%
($3,009,000) and operating income increased approximately 218% ($926,000), as
compared to Short Year 1998. The increase in net sales and operating income was
due to increased sales of power conditioning units and systems. Operating income
increased due to increased sales of higher margin customized power conditioning
and distribution units.

EME's net sales in Short Year 1999 decreased approximately 3%
($272,000) and operating income increased approximately 98% ($474,000), as
compared to net sales and operating income in Short Year 1998. Contributing to
the decreased net sales were decreased sales of actuation systems to the
aerospace industry.

SL-MTI's net sales in Short Year 1999 decreased approximately 2%
($129,000) and operating loss increased approximately 127% ($427,000), as
compared to net sales and operating income in Short Year 1998. Contributing to
the decreased net sales were decreased sales of precision motor products to the
aerospace industry because of customer requests to delay the shipment of orders.

RFL's net sales and operating income in Short Year 1999 included the
financial results of the RFL acquisition during 1999 after Short Year 1998.

SurfTech's net sales in Short Year 1999 decreased approximately 2%
($21,000) and the operating income increased approximately 944% ($85,000), as
compared to net sales and operating income in Short Year 1998.

SL Waber was sold in September 2001 and is reported in these
accounts as discontinued operations.

COST OF SALES

As a percentage of net sales, cost of products sold in Short Year
1999 was approximately 66%, as compared to approximately 64% in Short Year 1998.
The percentage increase was a direct result of product mix, which included a
higher percentage of lower margin products such as actuators and power
distribution systems.

ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES

Engineering and product development expenses in Short Year 1999 were
$4,150,000, an increase of approximately 75% ($1,777,000), as compared to Short
Year 1998. As a percentage of net sales, engineering and product development
expenses were approximately 7% in both Short Year 1999 and Short Year 1998.
During Short Year 1999, increased expenses were primarily related to additional
investments associated with the RFL and Todd Products acquisitions.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses in Short Year 1999 were
$9,283,000, an increase of approximately 78% ($4,072,000), as compared to Short
Year 1998. Increases were primarily due to the acquisition of RFL and Todd
Products. As a percentage of net sales, selling, general and administrative
expenses in Short Year 1999 and Short Year 1998 were approximately 16%.

DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses in Short Year 1999 were
$1,830,000, an increase of approximately 47% ($584,000), as compared to Short
Year 1998. The Short Year 1999 increase was primarily related to the
depreciation of property, plant and equipment, the amortization of computer
software and the amortization of intangible assets associated with the RFL and
Todd Products acquisitions.

OTHER INCOME (EXPENSE)

Interest income in Short Year 1999 decreased, as compared to Short
Year 1998, due to lower cash balances. Interest expense in Short Year 1999
increased, as compared to Short Year 1998, primarily due to the higher levels of
borrowing due to the acquisition of RFL and Todd Products.

GAIN FROM DEMUTUALIZATION OF LIFE INSURANCE COMPANY

The Company recorded a non-recurring gain in Short Year 1999 of
$1,812,000 from the demutualization of a life insurance company.

TAXES

The effective tax rate in Short Year 1999 was 48%, as compared to
54% in Short Year 1998. This decrease was primarily due to a loss benefit in
Short Year 1999. This difference resulted from the timing of certain tax-related
expense allocations with respect to discontinued operations (SL Waber).

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations and growth
primarily through funds generated from operations and borrowings under the
Revolving Credit Facility. During the six months ended June 30, 2002, the net
cash provided by operating activities was $0.9 million, as compared to net cash
used by operating activities of $2.4 million during the six months ended June
30, 2001. The increase, as compared to the same period last year, resulted
primarily from improved operating results, significant reductions in inventory
and collections of receivables, particularly collection of recoverable income
taxes, partially offset by reductions in accrued liabilities and accounts
payable.

During the six months ended June 30, 2002, the net cash provided by
investing activities was $9.6 million. This was primarily generated by the
proceeds from life insurance policies of $10.7 million received during the first
quarter of the year. In the prior year six-month period, the Company used $1.7
million of net cash, principally due to the purchase of equipment.

During the six months ended June 30, 2002, net cash used by
financing activities was $14.6 million, primarily related to the pay down of the
Revolving Credit Facility in the net amount of $16.4 million. In the comparable

period last year, financing activities provided cash of $2.9 million,
principally due to net borrowings from the Revolving Credit Facility of $1.5
million.

As of June 30, 2002, the Company had principal debt outstanding of
$20.3 million under the Revolving Credit Facility, as compared to $35.7 million
at December 31, 2001. At September 30, 2002 the principal debt outstanding under
the Revolving Credit Facility was approximately $20.5 million. The Revolving
Credit Facility provides for the Company to borrow up to $25.5 million, subject
to commitment fees, but not compensating balances. The Revolving Credit Facility
contains limitations on borrowings and requires maintenance of certain levels of
quarterly net income and a minimum fixed charge coverage ratio, which is the
ratio of earnings before interest, taxes, depreciation and amortization, plus
operating rent, to the sum of operating rent, capital expenditures and interest
charges. The Company is also prohibited from paying dividends under the
Revolving Credit Facility. The Company had $4.7 million available for borrowings
under its Revolving Credit Facility as of June 30, 2002. The weighted average
interest rate on borrowings during the year ended December 31, 2001 was 7.57%.

The Company is currently seeking to refinance the Revolving Credit
Facility. The Revolving Credit Facility matures on December 31, 2002 and
provides for the payment of a facility fee of $780,000 in the event that the
Revolving Credit Facility is not repaid by September 30, 2002 or by October 31,
2002 under certain circumstances. Pursuant to the terms of the Revolving Credit
Facility, if the Company delivers a binding commitment letter to the banks by
September 30, 2002 and refinances the Revolving Credit Facility on or before
October 31, 2002, no such fee is due. The Company delivered binding commitment
letters to the banks and is in the process of attempting to refinance the
Revolving Credit Facility prior to such date.

The Company received two commitments letters, one for a senior
secured facility and one for a subordinated mezzanine term loan. The Company is
currently negotiating with the senior secured facility lender regarding
definitive documentation for such loan. With respect to the subordinated
mezzanine term loan, Steel Partners, of which Warren Lichtenstein, the Company's
Chief Executive Officer and the Chairman of the Board, is the managing member of
its general partner, has issued the commitment letter to the Company pursuant to
which it has agreed to extend to the Company a subordinated loan in the maximum
amount of $5.0 million. Such loan is contemplated to be issued on the date of
refinancing of the Revolving Credit Facility and would be repaid upon the
earlier to occur of (i) the closing of this offering, (ii) the repayment or
refinancing of the senior credit facility that refinances the Revolving Credit
Facility or (iii) if the Company raises capital through the issuance of
additional equity or debt securities. The Company is negotiating definitive
documentation for such loan. At the present time the Company believes that the
funding of both loans would be required to refinance the Revolving Credit
Facility. There can be no assurance that the Company will be able to refinance
the Revolving Credit Facility prior to October 31, 2002 or that the Revolving
Credit Facility will be refinanced successfully.

The Company has retained Imperial Capital, LLC to act as its
financial advisor. Imperial Capital, LLC is spearheading the Company's
initiative to explore a sale of some or all of its businesses and has also
assisted management in its ongoing efforts to secure new long term debt to
refinance the Company's current Revolving Credit Facility.

The Company's German subsidiary, EME, also has $5.6 million in lines
of credit with its banks in Germany that expire at various times during 2002.
Under the terms of its lines of credit, EME can borrow for any purpose at
interest rates ranging from 7.125% to 8.25%. No financial covenants are
required.

The Company's current ratio was 1.1 to 1 at June 30, 2002 and
December 31, 2001. This ratio was maintained for the period ended June 30, 2002,
primarily due to the receipt of life insurance proceeds of $10,676,000 used to
pay down current debt, principally the Revolving Credit Facility, which was
classified as current debt as of December 31, 2001.

As a percentage of total capitalization, consisting of debt and
shareholders' equity, total borrowings by the Company were 40% at June 30, 2002
and 54% at December 31, 2001. During the first six months total borrowings
decreased by $15,222,000.

Capital expenditures of $1,120,000 made during the first six months
of 2002 primarily related to improvements in process technology and equipment.
During the remaining quarters of 2002, the Company plans to incur up to
$2,000,000 of capital expenditures. This amount is subject to change depending
upon a number of factors including certain market conditions within the
Company's business segments and availability of financing. For the twelve months
ended December 31, 2001, capital expenditures were $2,342,000.

During the first six months of 2002, the Company has been able to
generate adequate amounts of cash to meet its operating needs. During the first
six months of 2002, Teal, RFL and MIT had produced positive cash flow,
aggregating approximately $5,000,000. Condor, EME and SurfTech experienced
negative cash flow for the same period. Condor's cash flow was negatively
impacted by payments made against its restructuring reserve of $575,000 and
deferred compensation payments $1,252,000. Without these cash payments, Condor
would have been cash flow positive. EME experienced negative cash flow primarily
due to the pay down of debt and performance under a long-term contract for which
they received a large cash advance in 2001. SurfTech's negative cash flow was
primarily due to its move to consolidate into one location.

With the exception of SurfTech and the segment reported as "Other"
(which consists primarily of corporate office expenses and accruals not
specifically allocated to the reportable business units), all of the Company's
operating segments were profitable at the operating level for the first six
months of 2002. SurfTech's operating loss was $485,000. SurfTech is facing
historically low demand in its marketplace and its operations have been
consolidated into one facility. Included in "Other" are special charges for the
six months ended June 30, 2002 of $1,834,000 related to the change-of-control
and proxy costs (see Note 9). Also in "Other" is a $542,000 addition to the
reserve for environmental matters, professional fees of $660,000, and other
expenses not allocated to the reportable business units.

Assuming no further significant slowdown of economic activity in the
markets in which the Company conducts business, management believes that
projected cash from operations, the tax refund received from Germany of
approximately $1.4 million on July 31, 2002 and funds expected to be available
under the Revolving Credit Facility will be sufficient to fund the Company's
operations and working capital requirements.

The following is a summary of the Company's contractual obligations
for the periods indicated that existed as of June 30, 2002:

Contractual Due in 6 Months to 4-5 After
Obligations 6 Months 3 Years Years 5-Years Total
----------- ---------- --------- --------- ------- ----------

Operating leases 549,837 1,875,915 1,069,778 81,827 3,577,357
Letters of credit 0 0 0 0 0
Long-term debt 22,885,771 84,000 14,000 0 22,983,771
---------- --------- --------- ------ ----------

Total 23,435,608 1,959,915 1,083,778 81,827 26,561,128
---------- --------- --------- ------ ----------

New Accounting Pronouncement Not Yet Adopted

In August 2001, the FASB issued Statement of Financial Accounting
Standard No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No.
143"), which provides the accounting requirements for retirement obligations
associated with tangible long-lived assets. This statement requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred. This statement will be effective for the
Company's 2003 year. The adoption of SFAS No. 143 is not expected to have a
material impact on the Company's consolidated financial position or results of
operations.

In April 2002, the FASB adopted Statement of Financial Accounting
Standards 145, rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections ("SFAS 145"). This Statement
rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of
Debt, and an amendment of that Statement, FASB Statement No. 64, and
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets
of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. Statement No. 145 is
effective for fiscal years beginning after May 15, 2002. The Company is
currently evaluating the impact if any, that implementation of this statement
will have on its results of operations or financial position.

In June 2002, The FASB issued Statement 146 Accounting for Costs
Associated with Exit or Disposal Activities ("SFAS 146"). This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issues No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The principal difference between this Statement and Issue 94-3
relates to its requirements for recognition of a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was
recognized at the date of an entity's commitment to an exit plan. The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company is currently evaluating the
impact if any, that implementation of this statement will have on its results of
operations or financial position.

European Monetary Unit ("Euro")

In 1999, most member countries of the European Union established
fixed conversion rates between their existing sovereign currencies and the
European Union's new currency, the euro. This conversion permitted transactions
to be conducted in either the euro or the participating countries' national
currencies. By February 28, 2002, all member countries were expected to have
permanently withdrawn their national currencies as legal tender and replaced
their currencies with euro notes and coins.

The euro conversion may have a favorable impact on cross-border
competition by eliminating the effects of foreign currency translations, thereby
creating price transparency. The Company is continuing to evaluate the
accounting, tax, legal and regulatory requirements associated with the euro
introduction. The Company does not expect the conversion to the euro to have a
material adverse effect on its consolidated financial position, results of
operations, or cash flows.

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 rate affect both interest
paid and earned by the Company. The Company's investments and outstanding debt
bear variable interest rates. Debt consists primarily of a revolving credit
agreement with three United States banks, where the Company borrows at the prime
interest rate, plus 2%. The Company also maintains lines of credit with German
banks, where EME can borrow at interest rates ranging from 5.20% to 8.25% per
year. The Company manufactures some of its products in Mexico, Germany and
Hungary and purchases some components in foreign markets. With the exception of
component purchases made by EME, all other foreign market component purchases
are primarily invoiced in U.S. dollars. The EME foreign market component
purchases are primarily invoiced in European Union euros (German marks prior to
January 1, 2002). Changes in interest and foreign currency exchange rates did

not have a material impact on the reported earnings for the year ended December
31, 2001 and are not expected to have a material impact on reported earnings for
2002.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On July 18, 2002, the Company announced that it dismissed Arthur
Andersen LLP ("Andersen") as its independent accountants and engaged Grant
Thornton LLP as its new independent accountants. The decision to dismiss
Andersen and to engage Grant Thornton LLP was recommended by the Audit Committee
of the Company's Board of Directors and approved by the Company's Board of
Directors.

Andersen's reports on the Company's financial statements for the two
years ended December 31, 2000 and December 31, 2001 did not contain an adverse
opinion or a disclaimer of opinion, nor were they qualified or modified as to
audit scope, or accounting principles.

However, as a result of an impairment charge related to the write
off of intangible assets of a subsidiary of the Company recognized at December
31, 2001, the Company was in violation of its net income covenant for the fourth
quarter of 2001 under the Company's Revolving Credit Facility. Additionally, on
March 1, 2002 the Company received a notice from its lenders under the Revolving
Credit Facility stating that it is currently in default under the Revolving
Credit Facility due to its failure to meet a scheduled debt reduction.

Consequently, Andersen's report for the period ended December 31,
2001 dated March 15, 2002 did contain the following paragraph: "The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 1 to the consolidated financial
statements, the Company was in technical default under its revolving credit
facility at December 31, 2001 and an additional event of default occurred on
March 1, 2002. Due to these events of default, the lenders that provide the
revolving credit facility do not have to provide any further financing and have
the right to terminate the facility and demand repayment of all amounts
outstanding. The existence of these events of default raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to this matter are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty."

On May 23, 2002, the Company and its lenders reached an agreement
(the "Amendment"), pursuant to which the lenders granted a waiver of default and
amended certain financial covenants of the Company's Revolving Credit Facility,
so that the Company is in full compliance with the Revolving Credit Facility
after giving effect to the Amendment. Additional information related to this
matter is provided in the Company's Form 8-K filed May 23, 2002.

During the Company's two most recent fiscal years and through July
18, 2002, there were no disagreements with Andersen on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
them to make reference to the subject matter in connection with their report on
the Company's consolidated financial statements for such years, and there were
no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

The Company has provided Andersen with a copy of the foregoing
disclosures and requested Andersen furnish the Company a letter stating whether
it agrees with the statements herein. The Company has not yet received that
letter and has not been able to obtain it after reasonable efforts. Accordingly,
pursuant to Item 304T of Regulation S-K, no response from Andersen will be filed
as an exhibit hereto.

During the Company's two most recent fiscal years and the subsequent interim
periods through July 18, 2002, the Company did not consult with Grant Thornton
LLP regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's consolidated financial statements, or any
other matters or events as set forth in Item 304(a)(2)(i) or (ii) of Regulation
S-K.

DIRECTORS AND OFFICERS

Set forth below are the names and ages of the directors and
executive officers of the Company, as such terms are defined in Items 401 and
402 of Regulation S-K, and their principal occupations at present and for the
past five years. In a contested election on January 22, 2002, five directors
were elected to the Board: Warren Lichtenstein, Steven Wolosky, Glen Kassan,
Mark Schwarz and James Henderson. In connection with such election, the proxy
statement pursuant to which such directors were elected described a plan whereby
each such director was committed to maximizing value for all of the Company's
stockholders. There are, to the Company's knowledge, no other agreements or
understandings by which these individuals were selected. No family relationships
exist between any directors or executive officers.

Name Age Positions with the Company
---- --- --------------------------
Warren Lichtenstein (1) 37 Chairman of the Board, Chief Executive Officer
Glen Kassan (1) 58 President, Director
David R. Nuzzo 44 Vice President - Finance and Administration, Secretary and Treasurer
J. Dwane Baumgardner (2) 61 Director
James Henderson 44 Director
Mark E. Schwarz (1)(2)(3) 41 Director
Steven Wolosky (2)(3) 46 Director
Richard Smith 62 Director
Avrum Gray 67 Director

BUSINESS BACKGROUND

Warren G. Lichtenstein was elected Chairman on January 24, 2002 and
Chief Executive Officer on February 4, 2002. Mr. Lichtenstein has served as the
Chairman of the Board, Secretary and the Managing Member of Steel Partners,
L.L.C., the general partner of Steel Partners II, L.P. ("Steel"), since January
1, 1996. Prior to such time, Mr. Lichtenstein was the Chairman and a director of
Steel Partners, Ltd., the general partner of Steel Partners Associates, L.P.,
which was the general partner of Steel, from 1993 until prior to January 1,
1996. Mr. Lichtenstein was the acquisition/risk arbitrage analyst at Ballantrae
Partners, L.P., a private investment partnership formed to invest in risk
arbitrage, special situations and undervalued companies, from 1988 to 1990. Mr.
Lichtenstein has served as a director of WebFinancial Corporation, a consumer
and commercial lender, since 1996 and as its President and Chief Executive
Officer since December 1997. He served as a director and the Chief Executive
Officer of Gateway Industries, Inc., a provider of database development and Web
site design and development services, since 1994 and as the Chairman of the
Board since 1995. Mr. Lichtenstein has served as a Director and the President
and Chief Executive Officer of Steel Partners, Ltd. since June 1999 and as its
Secretary and Treasurer since May 2001. He has also served as Chairman of the
Board of Directors of Caribbean Fertilizer Group Ltd., a private company engaged
in the production of agricultural products in Puerto Rico and Jamaica, since
June 2000. Mr. Lichtenstein is also a Director of the following publicly held
companies: TAB Products Co., a document management company; Tandycrafts, Inc., a
manufacturer of picture frames and framed art; Puroflow Incorporated, a designer
and manufacturer of precision filtration devices; ECC International Corp., a
manufacturer and marketer of computer-controlled simulators for training
personnel to perform maintenance and operator procedures on military weapons;
and United Industrial Corporation, a designer and producer of defense, training,
transportation and energy systems.

Glen Kassan was elected as a Director on January 24, 2002 and as
President of the Company on February 4, 2002. Mr. Kassan has served as Executive
Vice President of Steel Partners, Ltd., a management and advisory company, since
March 2002. Steel Partners, Ltd. has provided management services to Steel and
other affiliates of Steel since March 2002. Mr. Kassan served as Executive Vice
President of Steel Partners Services, Ltd., a management and advisory company,
from June 2001 through March 2002 and Vice President from October 1999 through
May 2001. Steel Partners Services, Ltd. provided management services to Steel
and other affiliates of Steel until March 2002, when Steel Partners, Ltd.
acquired the rights to provide certain management services from Steel Partners
Services, Ltd. He has also served as Vice President, Chief Financial Officer and

--------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.

Secretary of WebFinancial Corporation, a commercial and consumer lender, since
June 2000. Mr. Kassan has served as Vice Chairman of the Board of Directors of
Caribbean Fertilizer Group Ltd., a private company engaged in the production of
agricultural products in Puerto Rico and Jamaica, since June 2000. From 1997 to
1998, Mr. Kassan served as Chairman and Chief Executive Officer of Long Term
Care Services, Inc., a privately owned healthcare services company which Mr.
Kassan co-founded in 1994 and initially served as Vice Chairman and Chief
Financial Officer. Mr. Kassan is currently a Director of Tandycrafts, Inc., a
manufacturer of picture frames and framed art, Puroflow Incorporated, a designer
and manufacturer of precision filtration devices, United Industrial Corporation,
a designer and producer of defense, training, transportation and energy systems
and the Chairman of the Board of US Diagnostic Inc., an operator of outpatient
diagnostic imaging.

David R. Nuzzo has been Vice President - Finance and Administration
& Secretary since December 1997 and Treasurer since January 2001. Prior thereto,
he was a Senior Partner with The Colchester Group, a financial and legal
consulting firm since April 1995. Mr. Nuzzo resigned effective January 23, 2002
and was reappointed effective February 8, 2002.

J. Dwane Baumgardner has been a Director since 1990. Mr. Baumgardner
has been the Chief Executive Officer and President of Magna Donnelly
Corporation, an automotive supplier of exterior and interior mirror, lighting
and engineered glass systems, since October 2002. Magna Donnelly Corporation is
a wholly owned subsidiary of Magna International Inc. that was established in
October 2002 by the merger of Donnelly Corporation and Magna Mirror Systems.
Prior to October 2002, Mr. Baumgardner had been the Chairman and Chief Executive
Officer of Donnelly Corporation, an automotive supplier, since 1986. Mr.
Baumgardner is currently a Director of Wescast Industries and Scanlon Leadership
Network (where he served as President from 1983 to 1985).

James R. Henderson was elected as a Director on January 24, 2002.
Mr. Henderson has served as a Vice President of Steel Partners, Ltd., a
management and advisory company, since March 2002. Steel Partners, Ltd. has
provided management services to Steel and its affiliates since March 2002. Mr.
Henderson served as a Vice President of Steel Partners Services, Ltd., a
management and advisory company, from August 1999 through March 2002. Steel
Partners Services, Ltd. provided management services to Steel and other
affiliates of Steel until March 2002, when Steel Partners, Ltd. acquired the
rights to provide certain management services from Steel Partners Services, Ltd.
He has also served as Vice President of Operations of WebFinancial Corporation,
a commercial and consumer lender, since September 2001. From 1996 to July 1999,
Mr. Henderson was employed in various positions with Aydin Corporation, a
defense-electronics manufacturer, which included a tenure as President and Chief
Operating Officer from October 1998 to June 1999. Prior to his employment with
Aydin Corporation, Mr. Henderson was employed as an executive with UNISYS
Corporation, an e-business solutions provider. Mr. Henderson is a Director and
Chief Executive Officer of ECC International Corp., a manufacturer and marketer
of computer-controlled simulators for training personnel to perform maintenance
and operator procedures on military weapons.

Mark E. Schwarz was elected as a Director on January 24, 2002. Mr.
Schwarz has served as the general partner, directly or through entities he
controls, of Newcastle Partners, L.P., a private investment firm, since 1993. As
of December 2001, Mr. Schwarz was the Managing Member of Newcastle Capital
Group, L.L.C., the general partner of Newcastle Capital Management, L.P., which
is the general partner of Newcastle Partners, L.P. Mr. Schwarz was also Vice
President and Manager of Sandera Capital, L.L.C., a private investment firm
affiliated with Hunt Financial Group, L.L.C., a Dallas-based investment firm
associated with the Lamar Hunt family, from 1995 to September 1999. Mr. Schwarz
currently serves as a Director of the following companies: WebFinancial
Corporation, a commercial and consumer lender; Nashua Corporation, a specialty
paper, label and printing supplies manufacturer; Bell Industries, Inc., a
computer systems integrator; and Tandycrafts, Inc., a manufacturer of picture
frames and framed art. Mr. Schwarz has also served as Chairman of the Board of
Directors of Hallmark Financial Services, Inc., a property-and-casualty
insurance holding company, since October 2001.

Steven Wolosky has been a partner of Olshan Grundman Frome
Rosenzweig & Wolosky LLP, counsel to the Company and Steel, for more than
five years.

Richard A. Smith has been a financial consultant, private investor
and trader from 1993 to the present. Mr. Smith previously served in various
management positions with Morgan Stanley Inc., most recently as co-head of the
Worldwide Institutional Equity from 1989 to 1992 and as a member of the
management committee from 1990 to 1992.

Avrum Gray has been the Chairman of G-Bar Limited Partnership, one
of the nation's largest independent options trading firms and a leading
specialist in computer-based arbitrage activities in the derivative markets,
since 1981. Mr. Gray is also a Director of Nashua Corporation, a specialty
paper, label and printing supplies manufacturer, and Lynch Corporation, a
holding company with subsidiaries engaged in manufacturing and distributing
frequency control devices and glass forming and other equipment. Mr. Gray is the
former Chairman of the Board of Lynch Systems, Inc., a glass press supplier to
the television and computer industry, and a former Chief Executive Officer of a
privately held manufacturer of components and devices for the automotive
aftermarket. Additionally, Mr. Gray has been Chairman of the Board of Spertus
College, as well as a board member of the Illinois Institute of Technology, the
Stuart School, and a number of philanthropic organizations, including the Jewish
Federation of Chicago.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding
compensation awarded to, earned by or paid to the Chief Executive Officer and
each of the Company's other executive officers whose total annual salary and
bonus exceeded $100,000 during the year 2001 (the "Named Executive Officers")
for services in all capacities during the years ended December 31, 2001 and
December 31, 2000, the fiscal year ended July 31, 1999, and for the five-month
period ended December 31, 1999. Owen Farren's employment with the Company was
terminated effective February 4, 2002 and Jacob Cherian resigned from the
Company effective April 26, 2002.

Summary Compensation Table
Long-Term
Compensation
Awards
Securities All Other
Name and Annual Compensation Underlying Compensation
Principal Position Year Salary ($) Bonus ($) Options/SARs (#) ($)(3)(4)
---- ---------- --------- ---------------- ---------
Owen Farren 2001 281,423 0 20,000 30,315
President and CEO................ 2000 270,000 0 0 28,769
1999(1) 111,404 0 20,000 1,708
1999 252,231 238,275(2) 24,000 29,149

David R. Nuzzo
Vice President-Finance and 2001 171,000 0 17,000 19,567
Administration, Treasurer and 2000 165,000 0 0 7,365
Secretary........................ 1999(1) 68,300 0 12,500 2,071
1999 155,708 58,000 7,500 8,298

Jacob Cherian 2001 119,808 0 17,000 20,056
Vice President 2000 --- --- --- ---
and Corporate 1999(1) --- --- --- ---
Controller....................... 1999 --- --- --- ---

(1) Salary information for the five-month period ended December 31, 1999.

(2) Includes $121,275, received under the terms of a special incentive program
for senior executives that was based on the Company's performance during
the three years ended July 31, 1998, and $117,000, which was based on the
performance of the Company and the achievement of individual goals during
fiscal 1999.
(3) Includes the Company's matching contributions and profit sharing
contributions made to the SL Industries Inc. Savings and Pension Plan for
Messrs. Farren and Nuzzo in fiscal year 1999 in the amounts of $7,353 and
$6,448, respectively; in fiscal year 1999 for Messrs. Farren, and Nuzzo in
the amounts of $8,249 and $7,398, respectively; in the five-month period
for 1999 for Messrs. Farren and Nuzzo in the amounts of $1,333 and $1,696,
respectively; in calendar year 2000 for Messrs. Farren and Nuzzo in the
amounts of $7,923 and $6,519, respectively; and in calendar year 2001 for
Messrs. Farren, Nuzzo and Cherian in the amounts of $8,500, $8,500 and
$5,990, respectively. The Company's contribution to the plan is based on a
percentage of the participant's elective contributions up to the maximum
defined under the plan and a fixed percentage, determined annually by the
Board of Directors, of the participant's total fiscal years 1998 and 1999
earnings. Under the plan, benefits are payable at retirement as a lump sum
or as an annuity.
(4) Includes premiums paid for group term life insurance for Messrs. Farren,
Nuzzo and Cherian, and premiums paid for an ordinary whole life insurance
policy on Mr. Farren's life in the face amount of $1,000,000, of which he
is the owner with the right to designate beneficiaries.

Pursuant to a standing resolution of the Board of Directors, upon
the death of any executive officer having more than five (5) years of service,
the Company will pay his spouse, over a 36-month period, an amount equal to the
officer's salary at his death.

STOCK OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning options to
purchase Common Stock granted under the Company's 1991 Long Term Incentive Plan
in 2001 to the named executive officers. Twenty percent of the options granted
were exercisable on the date of grant with the balance exercisable in twenty
percent increments, one, two, three and four years after the date of grant. The
material terms of such options appear in the following table.

Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (1)
-------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Stock Options
Underlying Granted to
Stock Options Employees in Exercise Expiration
Name Granted (#) Fiscal Year Price($/SH) Date 5%($) 10% ($)
---- ----------- ----------- ----------- --------------- ----- -------

Owen Farren 20,000 12% $ 5.75 09/25/2011 $72,323 $183,280
Jacob Cherian 7,000 4% $12.175 05/18/2011 $53,598 $135,827
Jacob Cherian 10,000 6% $ 5.75 09/25/2011 $36,161 $ 91,640
David R. Nuzzo 7,000 4% $12.175 05/18/2011 $53,598 $135,827
David R. Nuzzo 10,000 6% $ 5.75 09/25/2011 $36,161 $ 91,640
-------------
(1) The Potential Realizable Value, determined in accordance with SEC rules,
assumes annualized market appreciation rates of 5% and 10%, respectively,
from a market value of $5.75/share and $12.175/share on September 25, 2001
and May 18, 2001 (the date of the grant) to September 25, 2011 and May 18,
2011 (the date of expiration of such options) for all optionees. These
assumptions are not intended to forecast the future price of the Company's
stock price. The real value of the options in this table depends on the
actual performance of the Company's Common Stock during the applicable
period, which may increase or decrease in value over the time period set
forth above. The Potential Realizable Value does not assume future
dividends, stock or cash. The option grant does not accrue cash dividends
unless the options are exercised, should dividends be declared.

AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END STOCK
OPTION VALUES

The following table sets forth the number of shares received upon
exercise of stock options by each of the Named Executive Officers during the
last completed fiscal year and the aggregate options to purchase shares of
Common Stock of the Company held by the Named Executive Officers at December 31,
2001.

Number of Securities
Underlying Value of Unexercised
Unexercised Options In-The-Money Options
At Fiscal Year End (#) at Fiscal Year End ($)(1)
----------------------- -------------------------
Shares
Acquired Upon Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
Owen Farren N/A N/A 227,200/27,800 252,300/1,500
David R. Nuzzo N/A N/A 42,750/19,250 250/750
Jacob Cherian N/A N/A 9,900/22,100 0/0

(1) Computed by multiplying the number of options by the difference between (i)
the per share closing price at fiscal year-end and (ii) the exercise price per
share.

LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR

The Company did not grant awards to any of the Company's executive
officers under any long-term incentive plans during the year ended December 31,
2001.

DIRECTOR COMPENSATION

Outside (i.e., non-employee) directors receive the following fees:

- $4,375 quarterly retainer fee;
- $1,000 for each Board of Directors meeting attended; and
- $750 for each committee meeting attended.

In fiscal year 1993, the Board of Directors adopted a Non-Employee
Director Non-Qualified Stock Option Plan (the "Directors' Plan"), which was
approved by the shareholders at the Company's 1993 Annual Meeting. Under the
Directors' Plan, non-employee Directors have the right annually during the month
of June to elect to receive non-qualified stock options in lieu of all or a
stated percentage of upcoming yearly directors fees. The number of shares
covered by such options is determined at the time such fees would otherwise be
payable based upon the fair market value of the Company's Common Stock at such
times, except, with respect to an election to defer all such fees, such
determination shall be based upon 133% of fair market value at such times.
Elections are irrevocable.

Under the Directors' Plan, Messrs. Baumgardner and Caruso (Mr.
Caruso served as a director until January 2002), elected for 2001 to receive
non-qualified stock options in lieu of all such fees. In accordance with such
elections, they received options to acquire 7,487 and 7,122 shares,
respectively, during 2001.

EMPLOYMENT CONTRACTS, TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS

In 2001, the Company entered into change-in-control agreements with
senior executives and other key personnel.

In January 2002, the five nominees of the RORID Committee were
elected to the Company's eight-member Board of Directors. Upon the occurrence of
this event, Messrs. Farren, Nuzzo and Cherian each received payment under his
respective change-in-control agreement. As a result, in January 2002 the Company
paid to Messrs. Farren, Nuzzo and Cherian, respectively, $877,565, $352,556 and
$250,000 under such agreements. Under their respective change-in-control

agreements, these executives are not entitled to receive any further cash
payments, but are entitled to receive insurance benefits for specified time
periods or until they obtain new employment, whichever occurs first.

Upon receiving their resignations, the Company exercised its rights
under the change-in-control agreements to require Messrs. Farren, Nuzzo and
Cherian to remain in their positions for up to ninety days. Mr. Farren was
subsequently terminated as Chief Executive Officer and President on February 4,
2002. Mr. Nuzzo has continued in his position with the Company. Mr. Cherian
resigned effective as of April 26, 2002, 2002.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 2001, the Compensation Committee members were J. Dwane
Baumgardner (Chairman), Richard E. Caruso and Walter I. Rickard, all of whom
were non-employee directors of the Company.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding
ownership of the Company's Common Stock, as of September 30, 2002 (except as
otherwise noted), by: (i) each person or entity (including such person's or
entity's address) who is known by the Company to own beneficially more than five
percent of the Company's Common Stock, (ii) each of the Company's Directors and
nominees for Director who beneficially owns shares, (iii) each Named Executive
Officer (as defined under Executive Compensation) who beneficially owns shares,
and (iv) all executive officers and Directors as a group. The information
presented in the table is based upon the most recent filings with the Securities
and Exchange Commission by such persons or upon information otherwise provided
by such persons to the Company.

Number of Shares
Name of Beneficial Owner Beneficially Owned(1) Percentage Owned(2)
------------------------ --------------------- -------------------

Dimensional Fund Advisors, Inc. 296,900 (3) 5.0%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401

The Gabelli Funds 1,545,700 (4) 26.3%
One Corporate Center
Rye, NY 10580-1435

Oaktree Capital Management, LLC 525,000 (5) 8.9%
333 South Grand Avenue
28th Floor
Los Angeles, CA 90071

Steel Partners II, L.P. 746,250 (6) 12.7%
150 East 52nd Street
21st Floor
New York, NY 10022

J. Dwane Baumgardner 64,639 (7) 1.1%

David R. Nuzzo 53,186 (8) *

Warren Lichtenstein 756,550 (9) 12.8%

Glen Kassan 0 *

Avrum Gray 26,200(10) *

James Henderson 0 *

Mark E. Schwarz 217,350(11) 3.7%

Richard Smith 0 *

Steven Wolosky 0 *

All Directors and Executive
Officers as a Group 1,117,925(12) 18.7%

* Less than one percent (1%).

(1) Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission. Under such rules, shares are deemed
to be beneficially owned by a person or entity if such person or entity has or
shares the power to vote or dispose of the shares, whether or not such person or
entity has any economic interest in such shares. Except as otherwise indicated,
and subject to community property laws where applicable, the persons and
entities named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Shares of Common Stock subject to options or warrants currently exercisable or
exercisable within 60 days are deemed outstanding for purposes of computing the
percentage ownership of the person or entity holding such option or warrant but
are not deemed outstanding for purposes of computing the percentage ownership of
any other person or entity.

(2) Based upon 5,888,158 shares outstanding as of September 30,
2002.

(3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of 296,900 shares, as
of January 30, 2002, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment company, or
in series of the DFA Investment Trust Company, a Delaware business trust, or the
DFA Group Trust and DFA Participation Group Trust, investment vehicles for
qualified employee benefit plans, all of which Dimensional serves as investment
manager. Dimensional disclaims beneficial ownership of all such shares.

(4) Based upon a Schedule 13D/A Amendment No. 20 dated April 2,
2002, filed with the Securities and Exchange Commission by Gabelli Funds, LLC
("Gabelli Funds"). Gabelli Group Capital Partners, Inc. ("Gabelli Partners")
makes investments for its own account and is the parent company of Gabelli Asset
Management Inc. ("GAMI"). Mario J. Gabelli is the Chairman of the Board of
Directors, Chief Executive Officer and majority shareholder of Gabelli Partners.
GAMI, a public company listed on the New York Stock Exchange, is the parent
company of a variety of companies engaged in the securities business, including
(i) GAMCO Investors, Inc. ("GAMCO"), a wholly-owned subsidiary of GAMI, an
investment adviser registered under the Investment Advisers Act of 1940, as
amended ("Advisers Act"), which provides discretionary managed account services
for employee benefit plans, private investors, endowments, foundations and
others; (ii) Gabelli Advisers, Inc. ("Gabelli Advisers"), a subsidiary of GAMI,
which provides discretionary advisory services to The Gabelli Westwood Mighty
Mites Fund; (iii) Gabelli Performance Partnership L.P. ("GPP"), a limited
partnership whose primary business purpose is investing in securities (Mario J.
Gabelli is the general partner and a portfolio manager for GPP); (iv) Gabelli
International Limited ("GIL"), a corporation whose primary business purpose is
investing in a portfolio of equity securities and securities convertible into,
or exchangeable for, equity securities offered primarily to persons who are
neither citizens nor residents of the United States; and (v) Gabelli Funds, LLC,
an investment adviser registered under the Advisers Act, which presently
provides discretionary managed account services for various registered
investment companies.

Includes the following shares deemed to be owned beneficially by the
following affiliates (the "Gabelli Affiliates"): 1,263,200 shares held by GAMCO;
107,000 shares held by GIL; 98,500 shares held by Gabelli Funds; 1,000 shares
held by Gabelli Foundation, Inc. ("Foundation"), a private foundation; 16,000
shares held by Gabelli Advisers; and 60,000 shares held by GPP. Each of the
Gabelli Affiliates claims sole voting and dispositive power over the shares held
by it. The foregoing persons do not admit to constituting a group within the
meaning of Section 13(d) of the Exchange Act. Mario J. Gabelli is the Chief
Investment Officer of each of the Gabelli Affiliates; the majority stockholder
and Chairman of the Board of Directors and Chief Executive Officer of Gabelli
Partners; the President, a Trustee and the Investment Manager of the Foundation;
and the General Partner and Portfolio Manager for GPP.

GAMCO, Gabelli Advisors, and Gabelli Funds, each has its principal
business office at One Corporate Center, Rye, New York 10580. GPP has its
principal business office at 401 Theodore Freund Ave., Rye, New York 10580. GIL
has its principal business office at c/o Fortis Fund Services (Cayman) Limited,
Grand Pavillion, Commercial Centre, 802 West Bay Road, Grand Cayman, British
West Indies. The Foundation has its principal offices at 165 West Liberty
Street, Reno, Nevada 89501.

(5) Oaktree Capital Management, LLC, a California limited liability
company ("Oaktree"), is deemed to have beneficial ownership of 525,000 shares as
of June 30, 2001. The principal business of Oaktree is providing investment
advice and management services to institutional and individual investors.
Oaktree's General Partner is OCM Principal Opportunities Fund, L.P., a Delaware
limited partnership.

(6) Based upon a Schedule 13D/A Amendment No. 10 dated August 23,
2002, filed jointly with the Securities and Exchange Commission by Steel
Partners and other persons in addition to other information.

(7) Includes 2,000 shares owned by Mr. Baumgardner and 62,639
shares, which Mr. Baumgardner has the right to acquire at any time upon exercise
of stock options.

(8) Includes 4,500 shares owned by Mr. Nuzzo, 5,936 shares
beneficially owned by Mr. Nuzzo as a participant in the Company's Savings and
Pension Plan, and 42,750 shares which Mr. Nuzzo has the right to acquire at any
time upon exercise of stock options.

(9) Includes the 746,250 shares of which, by virtue of his position
as Chairman of the Board, Chief Executive Officer and Secretary of Steel
Partners (as described in Note 6 above), Mr. Lichtenstein has the power to vote
and dispose.

(10) Includes 3,500 shares held by Mr. Gray's Individual Retirement
Account, 13,400 shares held by 1993 GF Limited Partnership, in which the general
partner is a corporation owned solely by Mr. Gray, and 6,800 shares held by AVG
Limited Partnership, in which Mr. Gray is a general partner. Also includes 2,500
shares held by JYG Limited Partnership, in which Mr. Gray's spouse is a general
partner. Except for the shares held in his Individual Retirement Account and by
JYG Limited Partnership, Mr. Gray disclaims beneficial ownership of these
shares.

(11) Includes 217,350 shares of which, by virtue of his position as
Managing Member of Newcastle Capital Group, L.L.C., which is the General Partner
of Newcastle Capital Management, L.P., which is the General Partner of Newcastle
Partners, L.P, Mr. Schwarz has the power to vote and dispose.

(12) Includes 105,389 shares which directors and executive officers
have the right to acquire, at any time, upon the exercise of nonqualified and
incentive stock options granted by the Company.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Steven Wolosky, a director of the Company, is a partner at the law
firm of Olshan Grundman Frome Rosenzweig & Wolosky LLP ("Olshan"). Olshan has
been retained by the Company as outside counsel.

In connection with the refinancing of the Revolving Credit Facility,
Steel Partners, of which Warren Lichtenstein, the Company's Chief Executive
Officer and the Chairman of the Board, is the managing member of its general
partner, has issued a commitment letter to the Company pursuant to which it has
agreed to extend to the Company a subordinated loan in the maximum amount of
$5.0 million. See "Liquidity and Capital Resources."

THE RIGHTS OFFERING

BACKGROUND OF THE RIGHTS OFFERING

The Board of Directors has proposed that we attempt to raise equity
capital through a rights offering to all of our shareholders and to use the
proceeds from the equity financing to reduce long term debt under our senior
secured credit facility. In order to support the success of the rights offering,
Steel Partners, of which Warren Lichtenstein, our Chief Executive Officer and
Chairman of the Board, is the managing member of the general partner, offered to
purchase any shares of common stock unsubscribed in the rights offering.

REASONS FOR THE RIGHTS OFFERING

At a meeting held on September 27, 2002 our Board unanimously
approved the rights offering.

The primary reasons for authorizing the rights offering are to repay
an interest-bearing loan made to us by Steel Partners and to the extent
available, meet our need for additional working capital. The Board determined
that the rights offering with Steel Partners' purchase of any unsubscribed
shares was our best alternative under the circumstances.

In approving the rights offering and Steel Partners' purchase, our
Board of Directors considered a number of factors, including the following:

o the importance of refinancing our Revolving Credit Facility
prior to October 31, 2002 and avoiding paying the additional
fee of $780,000;

o the difficulty of refinancing the Revolving Credit Facility
without the additional proceeds to be realized hereby;

o the requirement of refinancing our Revolving Credit Facility
prior to December 31, 2002, its maturity date;

o the commercial and other risks associated with a restructuring
or recapitalization and the impact of those alternatives on our
shareholders and our creditors;

o the willingness of Steel Partners to agree to purchase any
unsubscribed shares up to ______ shares; and

o the belief that the transaction was the best alternative
reasonably available to us from the perspective of our public
shareholders and our creditors.

The preceding discussion of the information and factors considered
and given weight by our Board of Directors is not intended to be exhaustive.
However, our board of directors believe that the discussion includes all of the
material factors that they considered. In reaching their decisions to approve
and to recommend approval of the rights offering and Steel Partners' purchase of
all unsubscribed rights, our Board of Directors did not assign any relative or
specific weights to the factors they considered. Individual Directors may have
given different weights to different factors.

NO BOARD OR FINANCIAL ADVISOR RECOMMENDATION

An investment in our common stock must be made according to your own
evaluation of your best interests. Accordingly, our Board of Directors does not
make any recommendation to you about whether you should exercise your rights.
Neither have we retained a financial advisor to make any recommendation to you
about whether you should exercise your rights.

THE RIGHTS

We will distribute to each holder of record of our common stock on
____________, 2002, at no charge, one nontransferable subscription right for
each _____ shares of our common stock they own. The rights will be evidenced by
rights certificates. Each right will allow you to purchase one additional share
of our common stock at a price of $___.

EXPIRATION OF THE RIGHTS OFFERING

You may exercise your subscription privilege at any time before
12:00 midnight, New York City time, on ______, 2002, the expiration date for the
rights offering. If you do not exercise your rights before the expiration date,
your unexercised rights will be null and void. We will not be obligated to honor
your exercise of rights if the subscription agent receives the documents
relating to your exercise after the rights offering expires, regardless of when
you transmitted the documents, except when you have timely transmitted the
documents under the guaranteed delivery procedures described below. We, with the
consent of Steel Partners, may extend the expiration date by giving oral or
written notice to the subscription agent on or before the scheduled expiration
date. If we elect to extend the expiration of the rights offering, we will issue
a press release announcing the extension no later than 9:00 a.m., New York City
time, on the next business day after the most recently announced expiration
date.

SUBSCRIPTION PRIVILEGES

BASIC SUBSCRIPTION PRIVILEGE. With your basic subscription privilege, you may
purchase one share of our common stock per right, upon delivery of the required
documents and payment of the subscription price of $_____ per share. Fractional
rights will be rounded up to the next higher whole right. The number of rights
subject to the rights offering has been arbitrarily increased by ______ rights
to cover increases resulting from rounding up. You are not required to exercise
all of your rights. We will deliver to you certificates representing the shares
that you purchased with your basic subscription privilege as soon as practicable
after the rights offering has expired.

OVER-SUBSCRIPTION PRIVILEGE. Subject to the allocation described below, each
subscription right also grants each rights holder an over-subscription privilege
to purchase additional shares of common stock that are not purchased by other
rights holders pursuant to the other rights holders' basic subscription
privileges. You are entitled to exercise your over-subscription privilege only
if you exercise your basic subscription privilege in full.

If you wish to exercise your over-subscription privilege, you should
indicate the number of additional shares that you would like to purchase in the
space provided on your subscription certificate. When you send in your
subscription certificate, you must also send the full purchase price for the
number of additional shares that you have requested to purchase (in addition to
the payment due for shares purchased through your basic subscription privilege).
If the number of shares remaining after the exercise of all basic subscription
privileges is not sufficient to satisfy all requests for shares pursuant to
over-subscription privileges, you will be allocated additional shares pro-rata
(subject to elimination of fractional shares), based on the number of shares you
purchased through the basic subscription privilege in proportion to the total
number of shares that you and other over-subscribing shareholders purchased
through the basic subscription privilege. However, if your pro-rata allocation
exceeds the number of shares you requested on your subscription certificate,
then you will receive only the number of shares that you requested, and the
remaining shares from your pro-rata allocation will be divided among other
rights holders exercising their over-subscription privileges.

As soon as practicable after the expiration date,
_______________________, acting as our subscription agent, will determine the
number of shares of common stock that you may purchase pursuant to the
over-subscription privilege. You will receive certificates representing these
shares as soon as practicable after the expiration date. If you request and pay
for more shares than are allocated to you, we will refund that overpayment,
without interest. In connection with the exercise of the over-subscription
privilege, banks, brokers and other nominee holders of subscription rights who
act on behalf of beneficial owners will be required to certify to us and to the
subscription agent as to the aggregate number of subscription rights that have
been exercised, and the number of shares of common stock that are being
requested through the over-subscription privilege, by each beneficial owner on
whose behalf the nominee holder is acting.

Steel Partners has agreed to exercise all of its rights and
additionally purchase any unsubscribed shares up to _____ shares.

NON-TRANSFERABILITY OF THE RIGHTS

Except in the limited circumstances described below, only you may
exercise the basic subscription privilege and the over-subscription privilege.
You may not sell, give away or otherwise transfer the basic subscription
privilege or the over-subscription privilege.

Notwithstanding the foregoing, you may transfer your rights to any
affiliate of yours and your rights also may be transferred by operation of law;
for example a transfer of rights to the estate of the recipient upon the death
of the recipient would be permitted. If the rights are transferred as permitted,
evidence satisfactory to us that the transfer was proper must be received by us
prior to the expiration date of the rights offering.

METHOD OF SUBSCRIPTION--EXERCISE OF RIGHTS

You may exercise your rights by delivering the following to the
subscription agent, at or prior to 12:00 midnight, New York City time, on
______________, 2002, the date on which the rights expire:

o your properly completed and executed rights certificate with
any required signature guarantees or other supplemental
documentation; and

o your full subscription price payment for each share subscribed
for under your basic subscription privilege and your
over-subscription privilege.

METHOD OF PAYMENT

Your payment of the subscription price must be made in U.S. dollars
for the full number of shares of common stock you are subscribing for by either:

o check or bank draft drawn upon a U.S. bank or postal,
telegraphic or express money order payable to the subscription
agent; or

o wire transfer of immediately available funds, to the
subscription account maintained by the subscription agent at
______________________.

RECEIPT OF PAYMENT

Your payment will be considered received by the subscription agent
only upon:

o receipt by the subscription agent of any uncertified check, or
certified check or bank draft drawn upon a U.S. bank or of any
postal, telegraphic or express money order; or

o receipt of collected funds in the subscription account
designated above.

DELIVERY OF SUBSCRIPTION MATERIALS AND PAYMENT

You should deliver your rights certificate and payment of the
subscription price or, if applicable, notice of guaranteed delivery, to the
subscription agent by one of the methods described below:

If by mail, by hand or by overnight courier to: ______________

[You may call the subscription agent at (800)
______________________or ( ) ______________.]

Your delivery to an address other than the address set forth above
will not constitute valid delivery.

CALCULATION OF RIGHTS EXERCISED

If you do not indicate the number of rights being exercised, or do
not forward full payment of the total subscription price for the number of
rights that you indicate are being exercised, then you will be deemed to have
exercised your basic subscription privilege with respect to the maximum number
of rights that may be exercised with the aggregate subscription price payment
you delivered to the subscription agent. If we do not apply your full
subscription price payment to your purchase of shares of our common stock, we
will return the excess amount to you by mail without interest or deduction as
soon as practicable after the expiration date of the rights offering.

YOUR FUNDS WILL BE HELD BY THE SUBSCRIPTION AGENT UNTIL SHARES OF COMMON STOCK
ARE ISSUED

The subscription agent will hold your payment of the subscription
price payment in a segregated account with other payments received from other
rights holders until we issue your shares to you.

SIGNATURE GUARANTEE MAY BE REQUIRED

Your signature on each rights certificate must be guaranteed by an
eligible institution such as a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc., or
from a commercial bank or trust company having an office or correspondent in the
United States, subject to standards and procedures adopted by the subscription
agent, unless:

o your rights certificate provides that shares are to be
delivered to you as record holder of those rights; or

o you are an eligible institution.

NOTICE TO BENEFICIAL HOLDERS

If you are a broker, a trustee or a depositary for securities who
holds shares of our common stock for the account of others on _______________
2002, the record date for the rights offering, you should notify the respective
beneficial owners of such shares of the rights offering as soon as possible to
find out their intentions with respect to exercising their rights. You should
obtain instructions from the beneficial owners with respect to the rights, as
set forth in the instructions we have provided to you for your distribution to
beneficial owners. If the beneficial owner so instructs, you should complete the
appropriate rights certificates and submit them to the subscription agent with
the proper payment. If you hold shares of our common stock for the account(s) of

more than one beneficial owner, you may exercise the number of rights to which
all such beneficial owners in the aggregate otherwise would have been entitled
had they been direct record holders of our common stock on the record date for
the rights offering, provided that, you, as a nominee record holder, make a
proper showing to the subscription agent by submitting the form entitled
"Nominee Holder Certification" which we will provide to you with your rights
offering materials.

BENEFICIAL OWNERS

If you are a beneficial owner of shares of our common stock or will
receive your rights through a broker, custodian bank or other nominee, we will
ask your broker, custodian bank or other nominee to notify you of this rights
offering. If you wish to exercise your rights, you will need to have your
broker, custodian bank or other nominee act for you. If you hold certificates of
our common stock directly and would prefer to have your broker, custodian bank
or other nominee exercise your rights, you should contact your nominee and
request it to effect the transaction for you. To indicate your decision with
respect to your rights, you should complete and return to your broker, custodian
bank or other nominee the form entitled "Beneficial Owners Election Form." You
should receive this form from your broker, custodian bank or other nominee with
the other rights offering materials. If you wish to obtain a separate rights
certificate, you should contact the nominee as soon as possible and request that
a separate rights certificate be issued to you.

INSTRUCTIONS FOR COMPLETING YOUR RIGHTS CERTIFICATE

You should read and follow the instructions accompanying the rights
certificate(s) carefully.

If you want to exercise your rights, you should send your rights
certificate(s) with your subscription price payment to the subscription agent.
Do not send your rights certificate(s) and subscription price payment to us.

You are responsible for the method of delivery of your rights
certificate(s) with your subscription price payment to the subscription agent.
If you send your rights certificate(s) and subscription price payment by mail,
we recommend that you send them by registered mail, properly insured, with
return receipt requested. You should allow a sufficient number of days to ensure
delivery to the subscription agent prior to the time the rights offering
expires.

DETERMINATIONS REGARDING THE EXERCISE OF YOUR RIGHTS

We will decide all questions concerning the timeliness, validity,
form and eligibility of your exercise of your rights and our determinations will
be final and binding. We, in our sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as we may determine. We may reject the exercise of any of your rights
because of any defect or irregularity. We will not receive or accept any
subscription until all irregularities have been waived by us or cured by you
within such time as we decide, in our sole discretion.

Neither we nor the subscription agent will be under any duty to
notify you of any defect or irregularity in connection with your submission of
rights certificates and we will not be liable for failure to notify you of any
defect or irregularity. We reserve the right to reject your exercise of rights
if your exercise is not in accordance with the terms of the rights offering or
in proper form. We will also not accept your exercise of rights if our issuance
of shares of our common stock to you could be deemed unlawful under applicable
law or is materially burdensome to us.

REGULATORY LIMITATION

We will not be required to issue to you shares of common stock
pursuant to the rights offering if, in our opinion, you would be required to
obtain prior clearance or approval from any state or federal regulatory
authority to own or control such shares if, at the time the subscription rights
expire, you have not obtained such clearance or approval.

GUARANTEED DELIVERY PROCEDURES

If you wish to exercise your rights, but you do not have sufficient
time to deliver the rights certificate evidencing your rights to the
subscription agent on or before the time your rights expire, you may exercise
your rights by the following guaranteed delivery procedures:

o deliver your subscription price payment in full for each share
you subscribed for under your subscription privileges in the
manner set forth in "Method of Payment" on page __ to the
subscription agent on or prior to the expiration date;

o deliver the form entitled "Notice of Guaranteed Delivery,"
substantially in the form provided with the "Instructions as to
Use of SL Rights Certificates" distributed with your rights
certificates at or prior to the expiration date; and

o deliver the properly completed rights certificate evidencing
your rights being exercised and the related nominee holder
certification, if applicable, with any required signatures
guaranteed, to the subscription agent within three business
days following the date of your Notice of Guaranteed Delivery.

Your Notice of Guaranteed Delivery must be delivered in
substantially the same form provided with the Instructions as to the Use of SL
Rights Certificates, which will be distributed to you with your rights
certificate. Your Notice of Guaranteed Delivery must come from an eligible
institution, or other eligible guarantee institutions which are members of, or
participants in, a signature guarantee program acceptable to the subscription
agent.

In your Notice of Guaranteed Delivery, you must state:

o your name;

o the number of rights represented by your rights certificates
and the number of shares of our common stock you are
subscribing for under your basic subscription privilege; and

o your guarantee that you will deliver to the subscription agent
any rights certificates evidencing the rights you are
exercising within three business days following the date the
subscription agent receives your Notice of Guaranteed Delivery.

You may deliver your Notice of Guaranteed Delivery to the
subscription agent in the same manner as your rights certificates at the address
set forth above under "--Delivery of Subscription Materials and Payment" on page
___. Alternatively, you may transmit your Notice of Guaranteed Delivery to the
subscription agent by facsimile transmission (Facsimile No.: (___) ____-_____).
To confirm facsimile deliveries, you may call (___) ____________________.

The subscription agent will send you additional copies of the form
of Notice of Guaranteed Delivery if you need them. Please call (__) __________
to request any copies of the form of Notice of Guaranteed Delivery. Banks and
brokerage firms please call (800) _____________ to request any copies of the
form of Notice of Guaranteed Delivery.

QUESTIONS ABOUT EXERCISING RIGHTS

If you have any questions or require assistance regarding the method
of exercising your rights or requests for additional copies of this prospectus,
the Instructions as to the Use of SL Rights Certificates or the Notice of
Guaranteed Delivery, you should contact the subscription agent at the following
address and telephone number: _________________.

SUBSCRIPTION AGENT

We have appointed _______________ to act as subscription agent for
the rights offering. We will pay all fees and expenses of the subscription agent
related to the rights offering and have also agreed to indemnify the
subscription agent from liabilities which it may incur in connection with the
rights offering.

NO REVOCATION

Once you have exercised your subscription privileges, you may not
revoke your exercise. Rights not exercised prior to the expiration date of the
rights offering will expire.

PROCEDURES FOR DTC PARTICIPANTS

We expect that your exercise of your basic subscription privilege
may be made through the facilities of the Depository Trust Company. If your
rights are held of record through DTC, you may exercise your basic subscription
privilege and your over-subscription privilege by instructing DTC to transfer
your rights from your account to the account of the subscription agent, together
with certification as to the aggregate number of rights you are exercising and

the number of shares of our common stock you are subscribing for under your
basic subscription privilege and your over-subscription privilege, if any, and
your subscription price payment for each share you subscribed for pursuant to
your basic subscription privilege and your over-subscription privilege.

No change will be made to the cash subscription price by reason of
changes in the trading price of our common stock prior to the closing of the
rights offering.

FOREIGN AND OTHER SHAREHOLDERS

Rights certificates will be mailed to rights holders whose addresses
are outside the United States or who have an Army Post Office or Fleet Post
Office address. To exercise such rights, you must notify the subscription agent,
and take all other steps that are necessary to exercise your rights on or prior
to the expiration date of the rights offering. If the procedures set forth in
the preceding sentence are not followed prior to the expiration date your rights
will expire.

EXPIRATION DATE, EXTENSIONS AND TERMINATION

We may extend the rights offering and the period for exercising your
rights, in our sole discretion. The rights will expire at 12:00 midnight, New
York City time, on ________________ 2002, unless we decide to extend the rights
offering. If the commencement of the rights offering is delayed, the expiration
date will be similarly extended. If you do not exercise your basic subscription
privilege prior to that time, your rights will be null and void. We will not be
required to issue shares of common stock to you if the subscription agent
receives your subscription certificate or your payment after that time,
regardless of when you sent the subscription certificate and payment, unless you
send the documents in compliance with the guaranteed delivery procedures
described above.

SHARES OF COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING

Approximately ______ million shares of our common stock will be
issued and outstanding after the rights offering.

EFFECTS OF RIGHTS OFFERING ON OUR STOCK OPTION PLANS AND OTHER PLANS

As of _____, 2002, there were outstanding options to purchase
___________ shares of our common stock issued or committed to be issued pursuant
to stock options granted by the Company and its predecessors. None of the
outstanding options have antidilution or other provisions for adjustment to
exercise price or number of shares which will be automatically triggered by the
rights offering. Each outstanding and unexercised option will remain unchanged
and will be exercisable for the same number of shares of common stock and at the
same exercise price as before the rights offering.

EFFECTS OF RIGHTS OFFERING ON STEEL PARTNERS' SECURITIES AND OWNERSHIP

Set forth below, for illustrative purposes only, are two scenarios
which indicate the effect the rights offering and related share issuance could
have on Steel Partners' relative voting and economic interest. As of the date of
this prospectus, Steel Partners controls 12.7% of the voting power of our
outstanding capital stock, and owns 12.7% of our outstanding common stock.

SCENARIO A -- All shares of common stock offered in the rights
offering are fully subscribed.

SCENARIO B -- Steel Partners is the only rights holder to acquire
shares of common stock pursuant to the rights offering.

Steel Partners
Economic Ownership
Percentage
Steel (at June 30, 2002)
Total Steel Partners Partners ------------------
Rights Rights Cash Voting Maximum
Scenario Offered Exercised Raised % Undiluted Dilution
-------- ------- --------- ------ - --------- ---------
A
B

OTHER MATTERS

We are not making this rights offering in any state or other
jurisdiction in which it is unlawful to do so, nor are we selling or accepting
any offers to purchase any shares of our common stock from rights holders who
are residents of those states or other jurisdictions. We may delay the
commencement of the rights offering in those states or other jurisdictions, or
change the terms of the rights offering, in order to comply with the securities
law requirements of those states or other jurisdictions. We may decline to make
modifications to the terms of the rights offering requested by those states or
other jurisdictions, in which case, if you are a resident in those states or
jurisdictions, you will not be eligible to participate in the rights offering.

BACKSTOP AGREEMENT

We entered into an agreement with Steel Partners dated as of
___________, 2002. Under the backstop agreement, Steel Partners has agreed to
exercise all their rights and to subscribe for the purchase of any unsubscribed
shares of common stock in the rights offering up to ____ shares.

Under the backstop agreement, the subscription price will be equal
to the subscription price applicable to all shareholders under the rights
offering.

Warren Lichtenstein, our Chief Executive Officer and Chairman of the
Board, is also the Managing Member of the General Partner of Steel Partners. By
virtue of his position at Steel Partners, Mr. Lichtenstein has the power to vote
and dispose all of Steel Partners' shares of our stock.

REPRESENTATIONS AND WARRANTIES. Under the backstop agreement, the
Company has made representations and warranties relating to:

o its organization, good standing, qualification and other
corporate matters;

o its power and authority to execute, deliver and perform its
obligations in connection with the rights offering;

o required consents and approvals, and absence of violations of
laws;

o the due authorization of the issuance of the rights and the
common stock;

o that it is not an "investment company" or a "public utility
holding company;" and

o brokers.

Steel Partners has made representations and warranties relating to:

o its organization, good standing, qualification and other
corporate matters;

o its power and authority to execute, deliver and perform its
obligations in connection with the rights offering;

o required consents and approvals, and absence of violations of
laws;

o brokers; and

o its understanding of the investment risks associated with the
rights and the common stock it will be purchasing pursuant to
the backstop agreement.

CONDITIONS TO CLOSING. Execution of the backstop agreement does not,
by itself, obligate the parties to consummate the rights offering. Each party's
obligation to consummate the rights offering is conditioned upon the following
closing conditions:

o no legal or judicial barriers to the rights offering;

o effectiveness of the registration statement, with no stop order
issued or threatened by the SEC;

o the accuracy of the representations and warranties of the other
party; and

o receipt of required consents, approvals, authorizations,
waivers and amendments.

Steel Partners' obligation to consummate the purchase of securities
provided for in the backstop agreement is also conditioned upon the following
closing conditions:

o completion of the rights offering in conformity with the
requirements provided in the registration statement;

o approval of the common stock issuable upon exercise of the
rights for listing on the NYSE;

INDEMNIFICATION. The Company has agreed to indemnify Steel Partners
and its representatives for any losses suffered by Steel Partners and its
representatives resulting from the breach of any representation, warranty or
covenant made by the Company in the backstop agreement or any related document,
except to the extent that such losses are determined to be the direct result of
fraud or crime committed by Steel Partners. Steel Partners shall be entitled to
initiate claims for indemnification for breaches of representations and
warranties until the first anniversary of the closing of the rights offering.

TERMINATION OF THE BACKSTOP AGREEMENT. The backstop agreement may be
terminated at any time following its execution but prior to the closing of the
rights offering by:

o the mutual consent of the Company and Steel Partners;

o either the Company or Steel Partners if any governmental entity
has issued a final and nonappealable order enjoining the
issuance of the rights and shares of common stock or the
consummation of the transaction;

o by Steel Partners if:

--any of the representations and warranties of the Company fail to be true and
correct and such failure causes a material adverse effect; or

--the Company breaches or fails to comply in any material respect with its
obligations under the agreement and does not cure such breach or failure
within 15 days after notice by Steel Partners; and

o by the Company if:

--any of the representations and warranties of Steel Partners fail to be true
and correct and such failure causes a material adverse effect; or

--Steel Partners breaches or fails to comply in any material respect with
their obligations under the agreement and do not cure such breach or
failure within 15 days after notice by the Company.

The foregoing description of the backstop agreement is qualified in
its entirety by the text of the backstop agreement which is an exhibit to the
registration statement that includes this prospectus. See "Where You Can Find
More Information" on page ___ of this prospectus.

DESCRIPTION OF CAPITAL STOCK

As of September 30, 2002, our authorized capital stock consisted of
25,000,000 shares of common stock, par value $0.20 per share, and 6,000,000
shares of preferred stock, no par value. As of that date, we had 5,888,158
shares of common stock outstanding and no shares of preferred stock outstanding.
The following is a summary of the material terms of our capital stock. This
summary does not purport to be complete or to contain all the information that
may be important to you, and is qualified in its entirety by reference to our
amended and restated articles of incorporation, or our articles of
incorporation, and bylaws. We encourage you to read the provisions of these
documents to the extent they relate to your individual investment strategy.
Copies of our articles of incorporation, as amended, and our bylaws, as amended,
are filed as exhibits to our annual report on Form 10-K for the year ended
December 31, 2000.

PREFERRED STOCK

Our articles of incorporation authorize us to issue preferred stock
in one or more series having designations, rights, and preferences determined
from time to time by our Board of Directors. Accordingly, subject to applicable
stock exchange rules and the terms of existing preferred stock, our Board of
Directors is empowered, without the approval of the holders of common stock, to
issue shares of preferred stock with dividend, liquidation, conversion, voting,

or other rights that could adversely affect the voting power or other rights of
the holders of common stock. Currently, we have not issued any preferred stock.
In some cases, the issuance of preferred stock could delay a change of control
of the Company or make it harder to remove incumbent management. In addition,
the voting and conversion rights of a series of preferred stock could adversely
affect the voting power of our common shareholders. Preferred stock could also
restrict dividend payments to holders of our common stock. Although we have no
present intention to issue any shares of preferred stock, we could do so at any
time in the future.

COMMON STOCK

VOTING RIGHTS. Each share of our common stock is entitled to one vote in the
election of Directors and other matters. A majority of shares of our voting
stock constitute a quorum at any meeting of shareholders. Common shareholders
are not entitled to cumulative voting rights.

DIVIDENDS. Subject to the preferential rights of any outstanding shares of
preferred stock and the restrictive terms of our credit agreement, which
prohibits the payment of dividends, dividends may be paid to holders of common
stock as may be declared by our Board of Directors out of funds legally
available for that purpose. We do not intend to pay dividends at the present
time or in the near future.

LIQUIDATION. If we liquidate, dissolve or wind-up our business, either
voluntarily or not, common shareholders will receive pro rata all assets
remaining after we pay our creditors.

MISCELLANEOUS. Holders of common stock have no preemptive, subscription,
redemption, or conversion rights.

The transfer agent and registrar for the common stock is American
Stock Transfer Company.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of certain federal income tax
consequences of the rights offering to holders of common stock that hold such
stock as a capital asset for federal income tax purposes. This discussion is
based on laws, regulations, rulings and decisions in effect on the date hereof,
all of which are subject to change (possibly with retroactive effect) and to
differing interpretations. This discussion applies only to holders that are U.S.
persons, which is defined as a citizen or resident of the United States, a
domestic partnership, a domestic corporation, any estate (other than a foreign
estate), and any trust so long as a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of the
trust. Generally, for federal income tax purposes an estate is classified as a
"foreign estate" based on the location of the estate assets, the country of the
estate's domiciliary administration, and the nationality and residency of the
domiciliary personal representative.

This discussion does not address all aspects of federal income
taxation that may be relevant to holders in light of their particular
circumstances or to holders who may be subject to special tax treatment under
the Internal Revenue Code of 1986, as amended, including, holders of outstanding
participatory preferred stock or warrants, holders who are dealers in securities
or foreign currency, foreign persons (defined as all persons other than U.S.
persons), insurance companies, tax-exempt organizations, banks, financial
institutions, broker-dealers, holders who hold common stock as part of a hedge,
straddle, conversion or other risk reduction transaction, or who acquired common
stock pursuant to the exercise of compensatory stock options or warrants or
otherwise as compensation.

We have not sought, and will not seek, an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the rights offering or the related share issuance. The following
summary does not address the tax consequences of the rights offering or the
related share issuance under foreign, state, or local tax laws. ACCORDINGLY,
EACH HOLDER OF COMMON STOCK SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE
PARTICULAR TAX CONSEQUENCES OF THE RIGHTS OFFERING OR THE RELATED SHARE ISSUANCE
TO SUCH HOLDER.

The federal income tax consequences for a holder of common stock on
a receipt of subscription rights under the rights offering should be as follows:

o A holder should not recognize taxable income for federal income
tax purposes in connection with the receipt of subscription
rights in the rights offering.

o Except as provided in the following sentence, the tax basis of
the subscription rights received by a holder in the rights
offering should be zero. If either (i) the fair market value of
the subscription rights on the date such subscription rights
are distributed is equal to at least 15% of the fair market
value on such date of the common stock with respect to which
the subscription rights are received or (ii) the holder elects,
by attaching a statement to its federal income tax return for
the taxable year in which the subscription rights are received,
to allocate part of the tax basis of such common stock to the
subscription rights, then upon exercise or transfer of the
subscription rights, the holder's tax basis in the common stock
should be allocated between the common stock and the
subscription rights in proportion to their respective fair
market values on the date the subscription rights are
distributed. A holder's holding period for the subscription
rights received in the rights offering should include the
holder's holding period for the common stock with respect to
which the subscription rights were received.

o A holder that allows the subscription rights received in the
rights offering to expire should not recognize any gain or
loss, and the tax basis of the common stock owned by such
holder with respect to which such subscription rights were
distributed should be equal to the tax basis of such common
stock immediately before the receipt of the subscription rights
in the rights offering.

o A holder should not recognize any gain or loss upon the
exercise of the subscription rights received in the rights
offering.

o The tax basis of the common stock acquired through exercise of
the subscription rights should equal the sum of the
subscription price for the common stock and the holder's tax
basis, if any, in the rights as described above.

o The holding period for the common stock acquired through
exercise of the subscription rights should begin on the date
the subscription rights are exercised.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be
passed upon for us by Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York,
New York. Steven Wolosky, a member of such firm, is a Director of the Company.

EXPERTS

The consolidated balance sheets of SL Industries as of December 31,
2001 and 2000, and the related consolidated statements of operations,
comprehensive income (loss), shareholders' equity and cash flows for the years
ended December 31, 2001 and 2000 and July 31, 1999, and for the five months
ended December 31, 1999, appearing in this prospectus and registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing. We have not been able to obtain, after reasonable
efforts, the written consent of Arthur Andersen to the inclusion of its report
in this prospectus, and we have not filed its consent in reliance on Rule 437a
under the Securities Act. Because Arthur Andersen has not consented to the
inclusion of its report in this prospectus, your ability to assert claims
against Arthur Andersen may be limited. In particular, because of this lack of
consent, you will not be able to sue Arthur Andersen under Section 11(a)(4) of
the Securities Act for any untrue statements of a material fact contained in the
financial statements audited by Arthur Andersen or any omissions to state a
material fact required to be stated in those financial statements and therefore
your right of recovery under that section may be limited.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and
other information with the SEC. The SEC allows us to "incorporate by reference"
the information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference into this prospectus is an important part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information as well as the information included in
this prospectus.

You may read and copy any document we file with the SEC at its
public reference room located at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549.

Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms and their copy charges. Our SEC filings are also
available to the public on the SEC's web site at http://www.sec.gov and through
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on
which our shares of common stock are traded.

We have filed with the SEC a registration statement on Form S-3
under the Securities Act of 1933 regarding to this rights offering. This
prospectus does not contain all of the information set forth in the registration
statement and its exhibits.

FORWARD-LOOKING STATEMENTS

This document and the information incorporated herein by reference
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to risks
and uncertainties and are based on the beliefs and assumptions of management,
based on information currently available to management. Forward-looking
statements can be identified by the use of the future tense or other
forward-looking words such as "believe," "expect," "anticipate," "intend,"
"plan," "estimate," "should," "may," "will," "objective," "projection,"
"forecast," "management believes," "continue," "strategy," "position" or the
negative of those terms or other variations of them or by comparable
terminology. In particular, statements, express or implied, concerning future
operating results or the ability to generate sales, income or cash flow are
forward-looking statements. Forward-looking statements include the information
concerning possible or assumed future results of our operations set forth in
this document under:

o Summary;

o Risk Factors;

o Business; and

o Capitalization.

and in the documents incorporated by reference under the captions:

o Description of Business; and

o Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. Our future results may differ
materially from those expressed in these forward-looking statements. Many of the
factors that will determine these results and values are beyond management's
ability to control or predict. These statements are necessarily based upon
various assumptions involving judgments with respect to the future including,
among others:

o the ability to achieve synergies and revenue growth;

o national, regional and local economic, competitive and
regulatory conditions and developments;

o technological developments;

o capital market conditions;

o inflation rates;

o interest rates;

o weather conditions;

o the timing and success of integration and business development
efforts;

o the impact of a national energy policy; and

o other uncertainties,

all of which are difficult to predict and many of which are beyond management's
control. You are cautioned not to put undue reliance on any forward-looking
statements.

You should understand that the foregoing important factors, in
addition to those discussed elsewhere in this document, including those under
the heading "Risk Factors," could affect our future results and could cause
results to differ materially from those expressed in such forward-looking
statements.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page Number in this Report

Report of Independent Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets December 31, 2001 and 2000 F-3
Consolidated Statements of Operations
Twelve Months Ended December 31, 2001 and 2000 and July 31, 1999
And Five Months Ended December 31, 1999 and 1998 F-4
Consolidated Statements of Comprehensive Income (Loss)
Twelve Months Ended December 31, 2001 and 2000 and July 31, 1999
And Five Months Ended December 31, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity
December 31, 2001 and 2000 and July 31, 1999
And Five Months Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows
Twelve Months Ended December 31, 2001 and 2000 and July 31, 1999
And Five Months Ended December 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
II. Valuation and Qualifying Accounts F-32

Consolidated Balance Sheets (unaudited)
June 30, 2002 and December 31, 2001 F-33
Consolidated Statements of Operations (unaudited)
Three Months Ended June 30, 2002 and 2001
And Six Months Ended June 30, 2002 and 2001 F-34
Consolidated Statements of Comprehensive Operations (Unaudited)
Three Months Ended June 30, 2002 and 2001
and Six Months Ended June 30, 2002 and 2001 F-35
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 2002 and 2001 F-36
Notes to Consolidated Financial Statements (unaudited) F-37

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To SL Industries, Inc.:

We have audited the accompanying consolidated balance sheets of SL Industries,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, comprehensive income (loss),
shareholders' equity and cash flows for the years ended December 31, 2001 and
2000 and July 31, 1999, and for the five months ended December 31, 1999. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SL Industries,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years ended December 31, 2001 and 2000
and July 31, 1999, and for the five months ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company was in technical default under
its revolving credit facility at December 31, 2001 and an additional event of
default occurred on March 1, 2002. Due to these events of default, the lenders
that provide the revolving credit facility do not have to provide any further
financing and have the right to terminate the facility and demand repayment of
all amounts outstanding. The existence of these events of default raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and financial statement schedule is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic 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 financial statements
taken as a whole.

/s/ ARTHUR ANDERSEN LLP

Philadelphia, Pennsylvania
March 15, 2002

F-2

SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS

December 31, December 31,
2001 2000
---- ----

ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 6,577,000 $ 1,189,000
Receivables, net .................................................... 36,041,000 21,986,000
Inventories ......................................................... 20,497,000 23,491,000
Prepaid expenses .................................................... 815,000 1,140,000
Net current assets of discontinued operations ....................... -- 3,192,000
Deferred income taxes ............................................... 6,300,000 4,864,000
------------- -------------
Total current assets ............................................ 70,230,000 55,862,000

Property, plant and equipment, net ..................................... 18,829,000 19,781,000
Property, plant and equipment of discontinued operations, net .......... -- 980,000
Long-term note receivable .............................................. 6,000 2,118,000
Deferred income taxes .................................................. 2,014,000 1,629,000
Cash surrender value of life insurance policies ........................ 1,323,000 11,486,000
Intangible assets, net ................................................. 14,799,000 20,770,000
Other assets ........................................................... 557,000 855,000
------------- -------------
Total assets ................................................... $ 107,758,000 $ 113,481,000
============= =============

LIABILITIES
Current liabilities:
Short-term bank debt ................................................ $ 1,367,000 $ --
Long-term debt due within one year .................................. 35,829,000 186,000
Accounts payable .................................................... 8,149,000 11,309,000
Accrued income taxes ................................................ 2,019,000 724,000
Accrued liabilities:
Payroll and related costs ......................................... 7,609,000 5,070,000
Other ............................................................. 11,781,000 7,393,000
------------- -------------
Total current liabilities ...................................... 66,754,000 24,682,000
Long-term debt less portion due within one year ........................ 1,009,000 36,533,000
Deferred compensation and supplemental retirement benefits ............. 4,268,000 5,892,000
Other liabilities ...................................................... 2,523,000 3,024,000
------------- -------------
Total liabilities .............................................. $ 74,554,000 $ 70,131,000
------------- -------------

Commitments and contingencies (Note 11)

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 ......................................... 39,025,000 38,455,000
Retained earnings ...................................................... 8,897,000 19,547,000
Accumulated other comprehensive (loss) income .......................... (5,000) 62,000
Treasury stock at cost, 2,587,000 and 2,639,000 shares, respectively ... (16,373,000) (16,374,000)
------------- -------------
Total shareholders' equity ..................................... 33,204,000 43,350,000
------------- -------------
Total liabilities and shareholders' equity ..................... $ 107,758,000 $ 113,481,000
============= =============

See accompanying notes to consolidated financial statements

F-3

SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

Twelve-Months Ended Twelve-Months Ended Twelve-Months Ended
December 31, December 31, July 31,
2001 2000 1999
------------- ------------- -------------

Net sales .................................................. $ 138,467,000 $ 148,405,000 $ 88,694,000
------------- ------------- -------------
Cost and expenses:
Cost of products sold .................................... 96,403,000 97,295,000 55,395,000
Engineering and product development ...................... 8,768,000 9,671,000 6,006,000
Selling, general and administrative ...................... 28,405,000 25,169,000 13,448,000
Depreciation and amortization ............................ 4,587,000 4,379,000 3,092,000
Restructuring costs ...................................... 3,868,000 -- --
Impairment of intangibles ................................ 4,270,000 -- --
Settlement of class action suit .......................... -- (875,000) --
------------- ------------- -------------
Total cost and expenses .................................... 146,301,000 135,639,000 77,941,000
------------- ------------- -------------
Income (loss) from operations .............................. (7,834,000) 12,766,000 10,753,000
------------- ------------- -------------
Other income (expense):
Interest income .......................................... 366,000 344,000 250,000
Interest expense ......................................... (3,407,000) (3,045,000) (991,000)
Gain from demutualization of insurance company ........... -- -- --
------------- ------------- -------------
Income (loss) from continuing operations before income taxes (10,875,000) 10,065,000 10,012,000
Income tax provision (benefit) ............................. (4,172,000) 3,642,000 4,213,000
------------- ------------- -------------
Income (loss) from continuing operations ................... (6,703,000) 6,423,000 5,799,000
Income (loss) from discontinued operations (net of tax) .... (3,947,000) (4,723,000) (393,000)
------------- ------------- -------------
Net income (loss) .......................................... $ (10,650,000) $ 1,700,000 $ 5,406,000
============= ============= =============

Basic net income (loss) per common share:

Income (loss) from continuing operations ................... $ (1.18) $ 1.14 $ 1.03
Loss from discontinued operations (net of tax) ............. (0.69) (0.84) (0.07)
------------- ------------- -------------
Net income (loss) .......................................... $ (1.87) $ 0.30 $ 0.96
============= ============= =============
Diluted net income (loss) per common share:

Income (loss) from continuing operations ................... $ (1.18) $ 1.12 $ 0.99
Loss from discontinued operations (net of tax) ............. (0.69) (0.82) (0.07)
------------- ------------- -------------
Net income (loss) .......................................... $ (1.87) $ 0.30 $ 0.92
============= ============= =============
Shares used in computing basic net income (loss)
per common share ......................................... 5,698,000 5,635,000 5,643,000
Shares used in computing diluted net income (loss)
per common share ......................................... 5,698,000 5,757,000 5,876,000

Five-Months Ended Five-Months Ended
December 31, December 31,
1999 1998
------------- -------------
(Unaudited)

Net sales .................................................. $ 59,032,000 $ 32,809,000
------------- -------------
Cost and expenses:
Cost of products sold .................................... 39,198,000 20,998,000
Engineering and product development ...................... 4,150,000 2,373,000
Selling, general and administrative ...................... 9,283,000 5,211,000
Depreciation and amortization ............................ 1,830,000 1,246,000
Restructuring costs ...................................... -- --
Impairment of intangibles ................................ -- --
Settlement of class action suit .......................... -- --
------------- -------------
Total cost and expenses .................................... 54,461,000 29,828,000
------------- -------------
Income (loss) from operations .............................. 4,571,000 2,981,000
------------- -------------
Other income (expense):
Interest income .......................................... 75,000 120,000
Interest expense ......................................... (1,077,000) (391,000)
Gain from demutualization of insurance company ........... 1,812,000 --
------------- -------------
Income (loss) from continuing operations before income taxes 5,381,000 2,710,000
Income tax provision (benefit) ............................. 2,592,000 1,452,000
------------- -------------
Income (loss) from continuing operations ................... 2,789,000 1,258,000
Income (loss) from discontinued operations (net of tax) .... (3,473,000) 703,000
------------- -------------
Net income (loss) .......................................... $ (684,000) $ 1,961,000
============= =============

Basic net income (loss) per common share:

Income (loss) from continuing operations ................... $ 0.50 $ 0.23
Loss from discontinued operations (net of tax) ............. (0.62) 0.12
------------- -------------
Net income (loss) .......................................... $ (0.12) $ 0.35
============= =============
Diluted net income (loss) per common share:

Income (loss) from continuing operations ................... $ 0.50 $ 0.21
Loss from discontinued operations (net of tax) ............. (0.62) 0.12
------------- -------------
Net income (loss) .......................................... $ (0.12) $ 0.33
============= =============
Shares used in computing basic net income (loss)
per common share ......................................... 5,624,000 5,641,000
Shares used in computing diluted net income (loss)
per common share ......................................... 5,624,000 5,886,000

SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Twelve-Months Ended Twelve-Months Ended Twelve-Months Ended
December 31, December 31, July 31,
2001 2000 1999
------------ ------------ ------------

Net income (loss) ..................................... $(10,650,000) $ 1,700,000 $ 5,406,000
Other comprehensive income (loss):
Currency translation adjustment, net of related taxes (67,000) 9,000 (31,000)
------------ ------------ ------------
Comprehensive income (loss) ........................... $(10,717,000) $ 1,709,000 $ 5,375,000
============ ============ ============

Five-Months Ended Five-Months Ended
December 31, December 31,
1999 1998
---------- -----------
(Unaudited)

Net income (loss) ..................................... $ (684,000) $ 1,961,000
Other comprehensive income (loss):
Currency translation adjustment, net of related taxes 4,000 72,000
---------- -----------
Comprehensive income (loss) ........................... $ (680,000) $ 2,033,000
========== ===========

See accompanying notes to consolidated financial statements.

F-4

SL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock
-------------------------------------------------------------

Issued Held In Treasury
-------------------------- ------------------------------

Shares Amount Shares Amount
-------------------------------------------------------------

BALANCE JULY 31, 1998.......................................... 8,153,000 $ 1,631,000 (2,546,000) $ (13,903,000)
Net income....................................................
Cash dividends, $.09 per share................................
Other, including exercise of
employee stock options and
related income tax benefits................................. 87,000 17,000
Treasury stock sold.............................. ............ 71,000 390,000
Treasury stock purchased...................................... (133,000) (1,648,000)
Current year translation adjustment...........................
-------------------------------------------------------------
BALANCE JULY 31, 1999......................................... 8,240,000 $ 1,648,000 (2,608,000) $ (15,161,000)
Net loss......................................................
Cash dividends, $.05 per share................................
Other, including exercise of
employee stock options and
related income tax benefits................................. 32,000 6,000
Treasury stock sold........................................... 19,000 108,000
Treasury stock purchased...................................... (61,000) (763,000)
Current year translation adjustment...........................
-------------------------------------------------------------
BALANCE DECEMBER 31, 1999..................................... 8,272,000 $ 1,654,000 (2,650,000) $ (15,816,000)
Net income....................................................
Cash dividends, $.10 per share................................
Other, including exercise of
employee stock options and
related income tax benefits................................. 26,000 6,000
Treasury stock sold........................................... 159,000 967,000
Treasury stock purchased...................................... (148,000) (1,525,000)
Current year translation adjustment...........................
-------------------------------------------------------------
BALANCE DECEMBER 31, 2000..................................... 8,298,000 $ 1,660,000 (2,639,000) $ (16,374,000)
Net income....................................................
Other, including exercise of
employee stock options and
related income tax benefits.................................
Treasury stock sold........................................... 134,000 847,000
Treasury stock purchased...................................... (82,000) (846,000)
Current year translation adjustment...........................
-------------------------------------------------------------
BALANCE DECEMBER 31, 2001..................................... 8,298,000 $ 1,660,000 (2,587,000) $ (16,373,000)
=============================================================

Accumulated
Capital in Other
Excess of Retained Comprehensive
Par Value Earnings Income (Loss)
--------------------------------------------------------------

BALANCE JULY 31, 1998......................................... $ 36,061,000 $ 14,476,000 $ 80,000
Net income.................................................... 5,406,000
Cash dividends, $.09 per share................................ (507,000)
Other, including exercise of
employee stock options and
related income tax benefits................................. 373,000 (1,000)
Treasury stock sold........................................... 498,000
Treasury stock purchased......................................
Current year translation adjustment........................... (31,000)
--------------------------------------------------------------
BALANCE JULY 31, 1999......................................... $ 36,932,000 $ 19,374,000 $ 49,000
Net loss...................................................... (684,000)
Cash dividends, $.05 per share................................ (280,000)
Other, including exercise of
employee stock options and
related income tax benefits................................. 715,000
Treasury stock sold........................................... 124,000
Treasury stock purchased......................................
Current year translation adjustment........................... 4,000
--------------------------------------------------------------
BALANCE DECEMBER 31, 1999..................................... $ 37,771,000 $ 18,410,000 $ 53,000
Net income.................................................... 1,700,000
Cash dividends, $.10 per share................................ (563,000)
Other, including exercise of
employee stock options and
related income tax benefits................................. 320,000
Treasury stock sold........................................... 364,000
Treasury stock purchased......................................
Current year translation adjustment........................... 9,000
--------------------------------------------------------------
BALANCE DECEMBER 31, 2000................................. ... $ 38,455,000 $ 19,547,000 $ 62,000
Net income.................................................... (10,650,000)
Other, including exercise of
employee stock options and
related income tax benefits................................. 440,000
Treasury stock sold........................................... 130,000
Treasury stock purchased......................................
Current year translation adjustment........................... (67,000)
--------------------------------------------------------------
BALANCE DECEMBER 31, 2001..................................... $ 39,025,000 $ 8,897,000 $ (5,000)
===============================================================

See accompanying notes to consolidated financial statements.

F-5

SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Twelve-Months Twelve-Months Twelve-Months
Ended Ended Ended
December 31, December 31, July 31,
2001 2000 1999
-----------------------------------------------------

OPERATING ACTIVITIES:
Income (loss) from continuing operations ............................ $ (6,703,000) $ 6,423,000 $ 5,799,000
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by operating activities:
Depreciation ..................................................... 3,001,000 2,808,000 1,961,000
Amortization ..................................................... 1,586,000 1,571,000 1,131,000
Restructuring charges ............................................ 3,868,000 -- --
Impairment of intangibles ........................................ 4,270,000 -- --
Write-down of inventory .......................................... 2,940,000 -- --
Provisions for losses on accounts receivable ..................... 469,000 389,000 40,000
Additions to other assets ........................................ (259,000) (610,000) (945,000)
Cash surrender value of life insurance policies .................. (981,000) (1,548,000) (753,000)
Deferred compensation and supplemental retirement benefits ....... 511,000 732,000 852,000
Deferred compensation and supplemental retirement benefit payments (440,000) (490,000) (620,000)
Decrease (increase) in deferred income taxes ..................... (3,715,000) (582,000) (765,000)
Discontinued product line expenses ............................... -- -- (141,000)
(Gain) loss on sales of equipment ................................ 13,000 (3,000) (13,000)
Investment in Kreiss Johnson ..................................... 107,000 69,000 (233,000)
Changes in operating assets and liabilities, excluding effects of
business acquisitions and dispositions:
Accounts receivable ............................................ (1,672,000) 1,110,000 (1,405,000)
Inventories .................................................... 2,701,000 (4,174,000) (70,000)
Prepaid expenses ............................................... 325,000 74,000 156,000
Accounts payable ............................................... 5,492,000 (761,000) (1,953,000)
Other accrued liabilities ...................................... 1,061,000 (1,125,000) (2,012,000)
Accrued income taxes ........................................... (644,000) 105,000 340,000
------------ ------------ ------------

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ 11,930,000 $ 3,988,000 $ 1,369,000
------------ ------------ ------------

INVESTING ACTIVITIES:
Proceeds from sale of assets of subsidiary .......................... 1,053,000 -- --
Proceeds from sales of equipment .................................... 3,000 76,000 920,000
Purchases of property, plant and equipment .......................... (2,342,000) (2,563,000) (1,901,000)
Decrease (increase) in notes receivable ............................. 36,000 (10,000) 32,000
Payments for acquisitions, net of cash acquired ..................... -- (376,000) (19,082,000)
Proceeds from cash surrender value of life insurance policies ....... 880,000 -- --
------------ ------------ ------------

NET CASH USED IN INVESTING ACTIVITIES ................................. $ (370,000) $ (2,873,000) $(20,031,000)
------------ ------------ ------------

FINANCING ACTIVITIES:
Cash dividends paid ................................................. -- (563,000) (507,000)
Death Benefits from life insurance policy ........................... 256,000 -- --
Proceeds from short-term debt ....................................... 1,374,000 -- 21,863,000
Proceeds from long-term debt ........................................ 24,800,000 11,560,000 33,878,000
Payments on short-term debt ......................................... -- (809,000) (21,012,000)
Payments on long-term debt .......................................... (24,276,000) (13,936,000) (17,395,000)
Proceeds from stock options exercised ............................... 440,000 215,000 476,000
Treasury stock (acquired) sold ...................................... 131,000 (196,000) (760,000)
------------ ------------ ------------

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................... $ 2,725,000 $ (3,729,000) $ 16,543,000
------------ ------------ ------------

NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS ................ (8,694,000) 2,450,000 2,138,000
Effect of exchange rate changes on cash ............................... (203,000) 236,000 52,000
------------ ------------ ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS ............................. 5,388,000 72,000 71,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................... 1,189,000 1,117,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 6,577,000 $ 1,189,000 $ 71,000
============ ============ ============

Five-Months Five-Months
Ended Ended
December 31, December 31,
1999 1998
--------------------------------------
(Unaudited)

OPERATING ACTIVITIES:
Income (loss) from continuing operations ............................ $ 2,789,000 $ 1,258,000
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by operating activities:
Depreciation ..................................................... 1,180,000 800,000
Amortization ..................................................... 650,000 446,000
Restructuring charges ............................................ -- --
Impairment of intangibles ........................................ -- --
Write-down of inventory .......................................... -- --
Provisions for losses on accounts receivable ..................... 10,000 13,000
Additions to other assets ........................................ (816,000) (425,000)
Cash surrender value of life insurance policies .................. (298,000) (249,000)
Deferred compensation and supplemental retirement benefits ....... 356,000 469,000
Deferred compensation and supplemental retirement benefit payments (219,000) (275,000)
Decrease (increase) in deferred income taxes ..................... (1,667,000) 526,000
Discontinued product line expenses ............................... -- --
(Gain) loss on sales of equipment ................................ 1,000 (11,000)
Investment in Kreiss Johnson .................................... 58,000 (257,000)
Changes in operating assets and liabilities, excluding effects of
business acquisitions and dispositions:
Accounts receivable ............................................ (3,041,000) 657,000
Inventories .................................................... (2,563,000) (332,000)
Prepaid expenses ............................................... (336,000) 261,000
Accounts payable ............................................... 235,000 (1,406,000)
Other accrued liabilities ...................................... (996,000) (3,296,000)
Accrued income taxes ........................................... 1,086,000 (1,037,000)
------------ ------------

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ (3,571,000) $ (2,858,000)
------------ ------------

INVESTING ACTIVITIES:
Proceeds from sale of assets of subsidiary .......................... -- --
Proceeds from sales of equipment .................................... 2,000 902,000
Purchases of property, plant and equipment .......................... (849,000) (1,247,000)
Decrease (increase) in notes receivable ............................. 28,000 37,000
Payments for acquisitions, net of cash acquired ..................... -- --
Proceeds from cash surrender value of life insurance policies ....... -- --
------------ ------------

NET CASH USED IN INVESTING ACTIVITIES ................................. $ (819,000) $ (308,000)
------------ ------------

FINANCING ACTIVITIES:
Cash dividends paid ................................................. (280,000) (226,000)
Death benefits from life insurance policy ........................... -- --
Proceeds from short-term debt ....................................... -- 1,267,000
Proceeds from long-term debt ........................................ 15,279,000 11,443,000
Payments on short-term debt ......................................... -- --
Payments on long-term debt .......................................... (7,915,000) (12,500,000)
Proceeds from stock options exercised ............................... 257,000 108,000
Treasury stock (acquired) sold ...................................... (531,000) 287,000
------------ ------------

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................... $ 6,810,000 $ 379,000
------------ ------------

NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS ................ (1,683,000) 2,940,000
Effect of exchange rate changes on cash ............................... 309,000 (153,000)
------------ ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS ............................. 1,046,000 --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................... 71,000 --
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 1,117,000 $ --
============ ============

See accompanying notes to consolidated financial statements.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION FOR THE FIVE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)

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 and power protection equipment that is used in a variety of
aerospace, computer, datacom, industrial, medical, telecom, transportation and
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 and, to a lesser
extent, commercial distributors.

On March 22, 2001, the Company announced, among other things, that the Board of
Directors had completed a previously announced review of strategic alternatives
and had determined that it would explore a sale of the Company in order to
maximize its value for shareholders. Credit Suisse First Boston assisted the
Company's Board of Directors in its review and has been engaged to lead this
process, which is ongoing.

LIQUIDITY AND GOING CONCERN: The Company is party to a Revolving Credit
Facility (as defined in Note 9) that allows the Company to borrow for working
capital and other purposes. The Revolving Credit Facility contains certain
financial and non-financial covenants, including requirements for certain
minimum levels of net income and a minimum fixed charge coverage ratio, as
defined, on a quarterly basis. As of December 31, 2001, the Company was in
violation of the net income covenant for the fourth quarter of 2001. The Company
also may not be able to meet its net income covenant for the first quarter of
2002 due to the operating charges incurred in connection with certain
change-in-control payments and proxy cost expenses. In addition, on March 1,
2002, the Company was notified that it was in default under the Revolving Credit
Facility due to its failure to meet the previously scheduled debt reduction to
$25,500,000 on March 1, 2002.

As a result of these covenant violations, the lender has all of the rights and
remedies available under the Revolving Credit Facility, including the ability to
demand immediate repayment of the outstanding balance. Management does not
believe that the lender will exercise its rights under the Revolving Credit
Facility to demand immediate repayment and plans to negotiate waivers of the
previous covenant violations, amendments to certain future required financial
covenants and an extension of the deadline for the scheduled debt reduction.
There can be no assurance that the lender will not demand immediate repayment of
the outstanding balance under the Revolving Credit Facility or that the Company
will be able to obtain waivers of default from its lender, amend certain future
required financial covenants, or extend the deadline for the scheduled debt
reduction.

The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

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.

REPORTING YEAR CHANGE: Pursuant to a resolution adopted by the Board of
Directors on September 24, 1999, the Company elected to change the date of its
fiscal year-end from July 31 to December 31 commencing January 1, 2000. As a
result, a transition period for the five-month period ended December 31, 1999,
was previously reported on a transition report on Form 10-Q and is also
presented herein. Consequently, the consolidated balance sheets have been
prepared as of December 31. The consolidated statements of operations, other
comprehensive income (loss) and cash flows present information for the calendar
years ended December 31, 2001

F-7

("2001") and 2000 ("2000"), the fiscal year ended July 31, 1999 ("fiscal 1999"),
and the five months ended December 31, 1999 and 1998.

REVENUE RECOGNITION: Revenue from product sales is generally recognized at the
time the product is shipped, with provisions established for estimated product
returns. Upon shipment, the Company also provides for the estimated cost that
may be incurred for product warranties. Rebates and other sales incentives
offered by the Company to its customers are recorded as a reduction of revenue
at the time of sale.

In accordance with Emerging Issues Task Force Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs", shipping and handling costs billed to
customers are included in net sales, while the costs of shipping and handling
incurred by the Company are included in the cost of products sold.

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.

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.

INTANGIBLE ASSETS: Intangible assets consist primarily of goodwill, trademarks,
covenants not to compete, patents, and a consulting agreement. The goodwill
resulting from the 2000 and fiscal 1999 and 1998 acquisitions and the goodwill
and trademarks resulting from the May 1995 acquisition are being amortized over
30 years or less. Goodwill resulting from acquisitions made prior to November 1,
1970, of $429,000 is considered to have continuing value over an indefinite
period, and is not being amortized. Covenants not to compete are amortized over
the stated terms and patents are amortized over the remaining estimated useful
lives. The consulting agreement had an amortizable life of ten years. The
Company continually evaluates whether events or circumstances have occurred that
would indicate that the remaining estimated useful life of an intangible asset
may warrant revision or that the remaining balance may not be recoverable. When
factors indicate that intangible assets should be evaluated for possible
impairment, the Company uses an estimate of the related undiscounted cash flows
over the remaining life of the intangible asset to measure recoverability. If
impairment exists, measurement of the impairment is based on the valuation
method which management believes most closely approximates the fair value of the
intangible asset, which has historically been based upon future projected
discounted cash flows. Impairment charges totaling $4,270,000 were recognized in
2001 related to corporate restructuring efforts (see Notes 8 and 16).

ENVIRONMENTAL EXPENDITURES: Environmental 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, which do not
contribute to future revenues, are charged to expense. 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 adjusted to reflect current
remediation progress, prospective estimates of required activity and other
relevant factors including changes in technology or regulations.

F-8

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.

ADVERTISING COSTS: Advertising costs are expensed as incurred. For the years
ended December 31, 2001, December 31, 2000, and July 31, 1999, these costs were
$404,000, $663,000, and $642,000, respectively. For the five months ended
December 31, 1999 and December 31, 1998, these costs were $303,000 and $237,000,
respectively.

RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as
incurred. For the years ended December 31, 2001, December 31, 2000, and July 31,
1999, these costs were $2,946,000, $3,136,000, and $1,901,000, respectively. For
the five months ended December 31, 1999 and December 31, 1998, these costs were
$1,257,000 and $676,000, 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 bases of assets and liabilities.

FOREIGN CURRENCY CONVERSION: The balance sheets and statements of operations of
the Company's Mexican subsidiaries are converted to US dollars at the year-end
rate of exchange and the monthly weighted average rate of exchange,
respectively. As the 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. The
functional currencies for the Company's German and Hungarian subsidiaries are
their local currencies. The translation from the local currency to U.S. dollars
is performed for balance sheet accounts using the current exchange rate in
effect at the balance sheet date and for earnings using the monthly weighted
average exchange rate during the period. Gains or losses resulting from such
translation are included in a separate component of shareholders' equity.
Through November 2001, a foreign currency loan was used to hedge the value of
the investment in the German subsidiary. Gains and losses on the translation of
this foreign currency loan to U.S. dollars were not included in the statement of
operations but shown as a separate component of shareholders' equity.

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, allowance for doubtful accounts, allowance for inventory
obsolescence and environmental costs.

EUROPEAN MONETARY UNIT ("EURO"): In 1999, most member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the European Union's new currency, the euro. This conversion
permitted transactions to be conducted in either the euro or the participating
countries' national currencies. By February 28, 2002, all member countries are
expected to have permanently withdrawn their national currencies as legal tender
and replaced their currencies with euro notes and coins.

F-9

The euro conversion may have a favorable impact on cross-border competition by
eliminating the effects of foreign currency translations, thereby creating price
transparency. The Company will continue to evaluate the accounting, tax, legal
and regulatory requirements associated with the euro introduction. The Company
does not expect the conversion to the euro to have a material adverse affect on
its consolidated financial position, results of operations, or cash flows.

NET INCOME (LOSS) PER COMMON SHARE: The Company determines net income (loss) per
share in accordance with Statement of Financial Accounting Standards No. 128
"Earnings per Share." Basic earnings per share is computed by dividing reported
earnings available to common shareholders by weighted average shares
outstanding. Diluted earnings per share is computed by dividing reported
earnings available to common shareholders by weighted average shares outstanding
plus the effect of outstanding dilutive stock options, using the treasury
method.

The following table reconciles the numerators and denominators of the basic and
diluted net income (loss) per common share calculations:

Income (Loss) Shares Per share amount
-------------------------------------------------------

For the Year Ended December 31, 2001:
Basic net income (loss) per common share ... $(10,650,000) 5,698,000 $(1.87)
Effect of dilutive securities .............. -- -- --
-------------------------------------------------------
Dilutive net income (loss) per common share $(10,650,000) 5,698,000 $(1.87)
-------------------------------------------------------

For the Year Ended December 31, 2000:
Basic net income per common share .......... $ 1,700,000 5,635,000 $0.30
Effect of dilutive securities .............. -- 122,000 --
-------------------------------------------------------
Dilutive net income per common share ....... $ 1,700,000 5,757,000 $0.30
-------------------------------------------------------

For the Year Ended July 31, 1999:
Basic net income per common share .......... $ 5,406,000 5,643,000 $0.96
Effect of dilutive securities .............. -- 233,000 (0.04)
-------------------------------------------------------
Dilutive net income per common share ....... $ 5,406,000 5,876,000 $0.92
-------------------------------------------------------

For the Five Months Ended December 31, 1999:
Basic net income (loss) per common share ... $ (684,000) 5,624,000 $(0.12)
Effect of dilutive securities .............. -- -- --
-------------------------------------------------------
Dilutive net income (loss) per common share $ (684,000) 5,624,000 $(0.12)
-------------------------------------------------------

For the Five Months Ended December 31, 1998:
Basic net income per common share .......... $ 1,961,000 5,641,000 $0.35
Effect of dilutive securities .............. -- 245,000 (0.02)
-------------------------------------------------------
Dilutive net income per common share ....... $ 1,961,000 5,886,000 $0.33
-------------------------------------------------------

During the years ended December 31, 2001, December 31, 2000, and July 31, 1999,
1,268,000, 703,000, and 496,000 stock options, respectively, were excluded from
the dilutive computations because their effect would have been anti-dilutive.
During the five months ended December 31, 1999 and December 31, 1998, 793,000
and 508,000 stock options, respectively, were excluded from the dilutive
computations because their effect would have been anti-dilutive.

F-10

RECENT ACCOUNTING PRONOUNCEMENTS: In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standard No.
141, "Business Combinations" ("SFAS No. 141"), which requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. As a result, use of the pooling-of-interests
method is prohibited for business combinations initiated thereafter. SFAS No.
141 also establishes criteria for the separate recognition of intangible assets
acquired in a business combination. In 2001, the Company adopted this statement,
which did not have any impact on its consolidated financial position or results
of operations.

In June 2001, the 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 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 useful lives. This statement is effective for the
Company's 2002 year. Effective January 1, 2002, the Company adopted SFAS No. 142
and implemented certain provisions, specifically the discontinuation of goodwill
amortization, and will implement the remaining provisions during 2002. In 2001,
the Company recorded goodwill amortization expense of approximately $808,000.
The Company is currently evaluating the remaining provisions of SFAS No. 142 to
determine the effect, if any, they may have on its consolidated financial
position or results of operations.

In August 2001, the FASB issued Statement of Financial Accounting Standard No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which
provides the accounting requirements for retirement obligations associated with
tangible long-lived assets. This statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. This statement will be effective for the Company's 2003 year.
The adoption of SFAS No. 143 is not expected to have a material impact on the
Company's consolidated financial position or results of operations.

In October 2001, the FASB issued Statement of Financial Accounting Standard No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), which excludes from the definition of long-lived assets goodwill and
other intangibles that are not amortized in accordance with SFAS No. 142. SFAS
No. 144 requires that long-lived assets to be disposed of by sale be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. SFAS No. 144 also
expands the reporting of discontinued operations to include components of an
entity that have been or will be disposed of rather than limiting such
discontinuance to a segment of a business. This statement will be effective for
the Company's 2002 year. The Company is currently evaluating the impact of SFAS
No. 144 to determine the effect, if any, it may have on the Company's
consolidated financial position or results of operations.

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

F-11

NOTE 2. ACQUISITIONS AND DISPOSITIONS

On May 11, 1999, pursuant to a Share Purchase Agreement dated April 1, 1999, the
Company acquired 100% of the issued and outstanding shares of capital stock of
RFL Electronics Inc. ("RFL"). The Company paid $11,387,000 in cash and gave
promissory notes with an aggregate face amount of $75,000 at closing. In
addition, in fiscal 1999 the Company paid a contingent payment of $1,000,000
based upon the financial performance of RFL for its fiscal year ended March 31,
1999. RFL is a leading supplier of teleprotection and specialized communication
equipment. The acquisition was accounted for using the purchase method.
Accordingly, the aggregate purchase price was allocated to the net assets
acquired based on their respective fair values at the date of acquisition. The
excess of the aggregate purchase price over the fair value of net tangible
assets acquired of $5,838,000 has been allocated to goodwill and is being
amortized on a straight-line basis over 30 years. The results of operations of
RFL, since the acquisition date, are included in the accompanying consolidated
financial statements.

On July 27, 1999, pursuant to an Asset Purchase Agreement dated July 13, 1999,
Condor D.C. Power Supplies, Inc. ("Condor"), a wholly-owned subsidiary of the
Company, acquired certain of the net operating assets of Todd Products
Corporation and Todd Power Corporation (together, "Todd Products"). The Company
paid $7,430,000 comprised of $3,700,000 in cash and assumption of debt equal to
approximately $3,730,000. There was also a contingent "earn-out" payment of
either $1,000,000, $3,000,000 or $5,000,000, payable in the event that sales
from the purchased assets were at least $30,000,000, $35,000,000 or $40,000,000
during the twelve-month period ended March 31, 2001. No contingent payment was
earned or paid. Condor also entered into a ten-year Consulting Agreement with
the chief executive officer of Todd Products for an aggregate consulting fee of
$1,275,000 to be paid in quarterly installments over three years. Todd Products
is a leading supplier of high quality power supplies to the datacom,
telecommunications and computer industries. The acquisition was accounted using
the purchase method. Accordingly, the aggregate purchase price was allocated to
the net assets acquired, based on their respective fair values at the date of
acquisition. The excess of the aggregate purchase price over the fair value of
net tangible assets acquired of $4,665,000 was allocated to goodwill
($3,390,000) and a consulting agreement ($1,275,000). During 2001, an evaluation
of the remaining value of the goodwill and the consulting agreement was
undertaken, resulting in the write off of the remaining unamortized balance of
$4,145,000 due to the impairment of assets acquired in connection with the
acquisition of Todd Products (see Notes 8 and 16).

In July 2001, the Board of Directors authorized the disposition of the Company's
SL Waber, Inc. ("SL Waber") subsidiary. Effective August 27, 2001, substantially
all of the assets of 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. Net sales from
discontinued operations for the years ended December 31, 2001, December 31,
2000, and July 31, 1999 were $10,316,000, $19,341,000, and $36,434,000,
respectively. Net sales from discontinued operations for the five months ended
December 31, 1999 and December 31, 1998 were $11,938,000 and $17,007,000,
respectively. The after tax operating losses from discontinued operations for
the years ended December 31, 2001, December 31, 2000, and July 31, 1999, and the
five months ended December 31, 1999

F-12

were $3,947,000, $4,723,000, $393,000, and $3,473,000, respectively. The
operating income from discontinued operations for the five months ended December
31, 1998 was $703,000. The provision for income or loss from discontinued
operations reflected in the accompanying consolidated statements of operations
includes the loss recognized in 2001 from the sale of the assets of SL Waber of
$2,745,000 and the income or losses of the subsidiary's operations during all
periods presented through December 31, 2001, net of the expected tax benefits
applicable thereto. As of December 31, 2001, the Company had approximately
$1,300,000 accrued for liabilities related to SL Waber.

NOTE 3. INCOME TAXES

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

Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
-----------------------------------------------------------------------------

U.S. ....... $(16,405) $ 7,098 $ 8,039 $ 4,491 $ 2,153
Non U.S. ... 5,530 2,967 1,973 890 557
-----------------------------------------------------------------------------
$(10,875) $ 10,065 $ 10,012 $ 5,381 $ 2,710
=============================================================================

The provision (benefit) for income taxes consists of the following:

Current:
Federal ..... $(2,114) $ 3,497 $ 2,503 $ 1,692 $ 604
International 677 1,214 876 317 212
State ....... 138 475 624 449 123
Deferred:
Federal ..... (2,231) (1,591) 173 40 453
International 2 (3) 1 99 22
State ....... (644) 50 36 (5) 38
------------------------------------------------------------------------------------
$(4,172) $ 3,642 $ 4,213 $ 2,592 $ 1,452
====================================================================================

The pre-tax domestic loss incurred in 2001 was carried back to prior years
resulting in recoverable income taxes of approximately $3,082,000.

The benefit for income taxes related to discontinued operations consists of
$1,193,000, $3,055,000, and $1,132,000 for the years ended December 31, 2001,
December 31, 2000, and July 31, 1999, respectively, and $2,904,000 and $434,000
for the five months ended December 31, 1999 and December 31, 1998, respectively.

F-13

Significant components of the Company's deferred tax assets and liabilities as
of December 31, 2001 and 2000 are as follows:

December 31, December 31,
2001 2000
--------------------------------
(In thousands)

Deferred tax assets:
Deferred compensation ................................... $ 1,900 $ 2,348
Liabilities related to environmental matters ............ 122 148
Inventory valuation ..................................... 1,405 569
Prepaid and accrued expenses ............................ 3,478 2,595
Assets and liabilities related to discontinued operations 136 1,006
State tax loss carryforwards ............................ 1,681 1,625
Intangibles ............................................. 1,723 --
Foreign tax credit carryforwards ........................ 1,272 --
--------------------------------
11,717 8,291
Less valuation allowances ............................... (1,677) --
--------------------------------
10,040 8,291
Deferred tax liabilities:
Accelerated depreciation and amortization ............... 1,696 1,738
Other ................................................... 30 60
--------------------------------
$ 8,314 $ 6,493
================================

As of December 31, 2001, the Company's net operating loss carryforwards
decreased by $4,778,000 to $0 for federal income tax purposes.

As of December 31, 2001, the Company generated foreign tax credits totaling
approximately $1,272,000, through the repatriation of earnings from its German
subsidiaries. These credits can be carried forward for five years and will
expire at the end of 2006.

The Company has assessed its past earnings history and trends, sales backlog,
budgeted sales, and expiration dates of carryforwards and has determined that it
is more likely than not that the $8,314,000 of net deferred tax assets as of
December 31, 2001 will be realized. In 2001, a valuation allowance of
approximately $1,677,000 was provided against gross deferred tax assets due to
the uncertainty of the realization of tax benefits for certain state net
operating loss carryforwards and foreign tax credits.

F-14

Following is a reconciliation of income tax expense (benefit) at the applicable
federal statutory rate and the effective rates:

Twelve Twelve Twelve Five Five
Months Months Months Months Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
-------------------------------------------------------------------------

Statutory rate ...................................... (34%) 34% 34% 34% 34%
Tax rate differential on Foreign Sales
Corporation/Extraterritorial Income Exclusion benefit
earnings ............................................ 5 (1) -- -- (1)
International rate differences ...................... (1) 3 1 2 3
State income taxes, net of federal income tax ....... (1) 4 4 8 6
Non-taxable settlement of life insurance class action
suit ................................................ -- (5) -- -- --
Cumulative effect of reduction in German tax
rates ............................................... 9 -- -- -- --
Taxable gain from surrender of life insurance
policies ............................................ (14) -- -- -- --
Discontinued operations adjustments ................. (1) 1 2 3 11
Other ............................................... (1) -- 1 1 1
-------------------------------------------------------------------------
(38%) 36% 42% 48% 54%
========================================================================

NOTE 4. RECEIVABLES
Receivables consist of the following:

December 31, December 31,
2001 2000
-------------------------------------
(In thousands)

Trade receivables.......................... $ 20,189 $ 22,023
Less allowances for doubtful accounts ..... (568) (560)
-------------------------------------
19,621 21,463
Receivables for life insurance policies
surrendered ............................... 10,229 --
Recoverable income taxes .................. 4,355 --
Other ..................................... 1,836 523
-------------------------------------
$ 36,041 $ 21,986
=====================================

Cash surrender value of life insurance policies at December 31, 2000 of
$11,486,000 was reduced to $1,323,000 as of December 31, 2001 due to surrender
of policies aggregating $10,229,000 and other adjustments of $66,000
(see Note 10).

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. The Company received
cash proceeds of $1,600,000, which was included in other receivables as of
December 31, 2001, in January 2002, all of which were used to pay down
debt under the Company's Revolving Credit Facility (as defined in Note 9).

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.

F-15

NOTE 6. INVENTORIES
Inventories consist of the following:

December 31, December 31,
2001 2000
-----------------------------------
(In thousands)

Raw materials.................................... $15,341 $17,419
Work in process.................................. 5,261 6,496
Finished goods................................... 3,401 2,065
-----------------------------------
24,003 25,980
Less allowances.................................. (3,506) (2,489)
-----------------------------------
$20,497 $23,491
===================================

The above includes certain inventories, which are valued using the LIFO method,
which aggregated $4,560,000 and $3,488,000 as of December 31, 2001 and 2000,
respectively. The excess of FIFO cost over LIFO cost as of December 31, 2001 and
2000 was approximately $335,000 and $507,000, respectively.

NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:

December 31, December 31,
2001 2000
-------------------------------
(In thousands)

Land ................................................ $4,654 $4,494
Buildings and leasehold improvements................. 10,406 10,550
Equipment and other property . ...................... 22,710 21,595
-------------------------------
37,770 36,639
Less accumulated depreciation. ...................... (18,941) (16,858)
-------------------------------
$18,829 $19,781
===============================

NOTE 8. INTANGIBLE ASSETS
Intangible assets consist of the following:

December 31, December 31,
2001 2000
-------------------------------------
(In thousands)

Patents ............................... $ 932 $ 925
Covenants not to compete and consulting
agreement ........................... 2,980 4,255
Goodwill .............................. 15,463 19,523
Trademarks ............................ 920 920
Other ................................. 503 503
-------------------------------------
20,798 26,126
Less accumulated amortization ......... (5,999) (5,356)
-------------------------------------
$ 14,799 $ 20,770
=====================================

F-16

During the year ended December 31, 2001, the Company determined that goodwill of
$3,179,000 and a consulting agreement of $966,000 related to the Todd Products
acquisition had become impaired (see Note 16). In addition, goodwill related
to SL Waber was written off in connection with the sale of substantially all of
its assets. A portion of the goodwill related to SL Surface Technologies, Inc.
("Surf Tech") was also written off in 2001.

NOTE 9. DEBT
Debt consists of the following:

December 31, December 31,
2001 2000
-----------------------------
(In thousands)

Short-term bank debt ........... $ 1,367 $ --
=============================
Revolving lines of credit ...... $35,689 $35,318
Mortgages payable .............. 237 437
Term loan ...................... 912 964
-----------------------------
36,838 36,719
Less portion due within one year 35,829 186
-----------------------------
Long-term bank debt ............ $ 1,009 $36,533
=============================

The Company is party to a Second Amended and Restated Credit Agreement dated as
of December 13, 2001, as amended (the "Revolving Credit Facility"). Under the
terms of the Revolving Credit Facility, the Company can borrow for working
capital and other purposes at the prime interest rate plus two percent.
Borrowings are collateralized by substantially all of the Company's assets. The
Revolving Credit Facility contains limitations on borrowings and requires
maintenance of certain financial and non-financial covenants, the most
restrictive of which require certain levels of quarterly net income and a
quarterly minimum fixed charge coverage, which is the ratio of earnings before
interest, taxes, depreciation and amortization, plus operating rent to operating
rent, capital expenditures and interest charges. In addition, the Company is
prohibited from paying dividends. The Revolving Credit Facility matures on
December 31, 2002 and provides for the payment of a fee of approximately
$780,000 in the event that the facility is not retired on or before October 31,
2002.

As of December 31, 2001, outstanding borrowings under the Company's Revolving
Credit Facility were $35,689,000. Available borrowings under the Company's
Revolving Credit Facility were $1,268,000 as of December 31, 2001. The weighted
average interest rate during the years ended December 31, 2001 and December 31,
2000 was 7.57% and 8.98%, respectively.

On March 1, 2002 the Company received a notice from its lenders under the
Revolving Credit Facility stating that it is currently in default under the
Revolving Credit Facility due to its failure to meet the previously scheduled
debt level to $25,500,000 on March 1, 2002. The Company's outstanding debt under
the Revolving Credit Facility was approximately $26,200,000 as of March 1, 2002.
Additionally, the Company did not meet its net income covenant under the
Revolving Credit Facility for the fourth quarter of 2001 due to the charge
related to the impairment of the intangible assets of Condor at December 31,
2001. Also, the Company may not be able to meet its net income covenant for the
first quarter of 2002. The Company and its lenders are currently in discussions
to extend the deadline for the scheduled debt reduction and to obtain a waiver
of the earnings covenant for the fourth quarter of 2001.

The Company's German subsidiary also has $3,457,000 in lines of credit with its
banks that mature in 2002. Under the terms of its lines of credit, the
subsidiary can borrow for any purpose at interest rates ranging from 5.2% to
8.25%. No financial covenants are required. As of December 31, 2001 and 2000,
outstanding borrowings under these facilities were $1,367,000 and $0,
respectively.

F-17

As of December 31, 2001 and December 31, 2000, the Company's German subsidiary
had mortgages payable on building additions, at interest rates of 3.95% and
4.75%, respectively, that require principal repayments through 2002 to 2004.

Principal maturities of debt payable over the next three years are $35,829,000,
$996,000, and $13,000 in 2002, 2003, and 2004, respectively.

NOTE 10. RETIREMENT PLANS AND DEFERRED COMPENSATION

The Company maintains three noncontributory defined contribution pension plans
covering substantially all employees. The Company's contribution to its plans is
based on a percentage of employee elective contributions and, in one plan, plan
year gross wages, as defined. Contributions to plans maintained by Teal
Electronics Corporation ("Teal") and RFL are based on a percentage of employee
elective contributions. RFL also makes a profit sharing contribution annually.
Costs accrued under the plans during the years ended December 31, 2001, December
31, 2000 and fiscal year ended July 31, 1999 amounted to approximately
$1,307,000, $1,485,000, and $788,000, respectively. Costs for the five months
ended December 31, 1999 and December 31, 1998 amounted to $624,000 and $312,000,
respectively. It is the Company's policy to fund its accrued retirement income
costs.

In addition, the Company makes contributions, based on rates per hour, as
specified in two union agreements, to two union-administered defined benefit
multi-employer pension plans. Contributions to these plans amounted to $55,000,
$60,000, and $60,000 for the years ended December 31, 2001, December 31, 2000
and fiscal year ended July 31, 1999, respectively. For the five months ended
December 31, 1999 and December 31, 1998, the amounts were $21,000 and $26,000,
respectively. 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.
The Company's share of the unfunded vested benefits liabilities of the union
plans to which it contributes is not material.

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%, 8%, 10% and 12%. The amount charged
to income in connection with these agreements amounted to $396,000, $420,000,
and $438,000 for the years ended December 31, 2001, December 31, 2000 and fiscal
year ended July 31, 1999, respectively, and $168,000 and $230,000 for the five
months ended December 31, 1999 and December 31, 1998, respectively.

In addition, the Company has agreements with certain active officers and key
employees providing for deferred compensation benefits. Benefits to be provided
to each participant are stated in separate elective salary deferral agreements.
The amount charged to income in connection with these agreements amounted to
$115,000, $312,000, and $414,000 for the years ended December 31, 2001, December
31, 2000 and fiscal year ended July 31, 1999, respectively, and $188,000 and
$239,000 for the five months ended December 31, 1999 and December 31, 1998,
respectively.

The Company is the owner and beneficiary of life insurance policies on the lives
of a majority of the participants having a deferred compensation or supplemental
retirement agreement. As of

F-18

December 31, 2001, the aggregate death benefit totaled $1,938,000, with the
corresponding cash surrender value of all policies totaling $1,323,000.

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 debt under the Company's Revolving Credit
Facility.

As of December 31, 2001, certain agreements may restrict the Company from
utilizing cash surrender value totaling approximately $760,000 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 insurance policies with premium expenses. Net
credits included in income in connection with the policies amounted to $789,000,
$1,399,000, and $354,000 for the years ended December 31, 2001, December 31,
2000 and fiscal year ended July 31, 1999, respectively, and $159,000 and $85,000
for the five months ended December 31, 1999 and December 31, 1998, respectively.

NOTE 11. COMMITMENTS AND CONTINGENCIES

For the years ended December 31, 2001, December 31, 2000 and fiscal year ended
July 31, 1999, rental expense applicable to continuing operations aggregated
approximately $1,696,000, $1,728,000, and $1,114,000, respectively. For the five
months ended December 31, 1999 and 1998, rental expense applicable to continuing
operations aggregated approximately $706,000 and $479,000, respectively. These
expenses are primarily for facilities and vehicles. The minimum rental
commitments as of December 31, 2001 are as follows:

(In thousands)

2002 $1,326
2003 866
2004 680
2005 665
2006 656
Thereafter 164
------
$4,357
======

As of December 31, 2001, the Company was contingently liable for $543,000 under
outstanding letters 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,
most frequently involving complaints by terminated employees and disputes with
customers and suppliers. 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.

F-19

motor was developed for use in an aircraft actuation system intended for use by
Vickers Corporation. The complaint seeks compensatory damages of approximately
$3,900,000. Management believes it has strong defenses to these claims and
intends to defend them vigorously.

ENVIRONMENTAL: Loss contingencies include potential obligations to investigate
and eliminate or mitigate the affects 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 firm to
date, management has provided an estimated accrual for all known costs believed
to be probable. 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.

In the fourth quarter of fiscal year 1990, the Company made a provision of
$3,500,000 to cover various such environmental costs for six locations, based
upon estimates prepared at that time by an independent engineering consulting
firm. In fiscal 1991, 1996 and 1999, based upon estimates, the Company made
additional provisions of $480,000, $900,000 and $375,000, respectively. The
fiscal 1996 provision was necessary since, during the latter part of fiscal
1995, the New Jersey Department of Environmental Protection required the Company
to begin additional investigation of the extent of off-site contamination at its
former facility in Wayne, New Jersey, where remediation had been underway. Based
on the results of that investigation, which were received in fiscal 1996, the
Company determined that additional remediation costs of approximately $1,000,000
were probable.

The Company filed claims with its insurers seeking reimbursement for many of
these costs, and received $900,000 from one insurer during fiscal year 1996 and
a commitment to pay 15% of the environmental costs associated with one location
up to an aggregate of $300,000. During fiscal 1997, the Company received
$1,500,000 from three additional insurers and from two of those insurers,
commitments to pay 15% and 20% of the environmental costs associated with the
same location up to an aggregate of $150,000 and $400,000, respectively. In
addition, the Company received $100,000 during 2001, 2000, and fiscal 1999, as
stipulated in the settlement agreement negotiated with one of the three
insurers. During 2000, the Company reversed a separate accrual for a potential
environmental penalty after being advised by legal counsel that there was only a
remote chance such penalty would be enforced. As of December 31, 2001 and
December 31, 2000, the remaining environmental accrual was $290,000 and
$357,000, respectively, of which $190,000 and $257,000, respectively, have been
included in "Accrued Liabilities" and $100,000 and $100,000, respectively, in
"Other Liabilities" in the accompanying consolidated balance sheets.

The Company is the subject of various other lawsuits and actions relating to
environmental issues, including administrative action in connection with Surf
Tech's Pennsauken facility which

F-20

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 Company believes that it has a significant defense
against all or any part of the claim and that any material impact is unlikely.

In May 2000, the Company discovered evidence of possible soil contamination at
its facility in Auburn, New York. The New York State Department of Environmental
Controls has been contacted and an investigation is currently underway. Based
upon the preliminary evidence, management does not believe that it will incur
material remediation costs at this site.

In December 2001, the Company received notice from the Connecticut Department of
Environmental Protection of an administrative hearing to determine
responsibility for contamination at a former industrial site located in New
Haven, Connecticut. The Company has requested an extension of time to determine
the nature of the alleged contamination and the extent of the Company's
responsibility. It is still very early in the investigation; however, based upon
the preliminary investigations, management does not believe that remediation of
this site will have a material adverse effect on its business or operations.

The Company is investigating a possible ground water containment plume on its
property in Camden, New Jersey. The Company does not know the extent of the
contamination or the amount of the cost to remediate.

EMPLOYMENT AGREEMENTS: In 2001, the Company entered into change-of-control
agreements with certain officers of the Company. On January 22, 2002, the
Company held its annual meeting of shareholders for 2001. At the 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 (such committee, 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 and three
incumbent directors were re-elected. Following the election of the five new
directors, the Company made payments to such officers under these
change-of-control agreements totaling approximately $1,480,000.

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 the change. These
payments range from three to 24 months of the employee's base salary as of the
termination date, as defined. If the change in control had occurred on December
31, 2001, and these employees had been terminated, the payments would have
aggregated approximately $4,500,000. All senior divisional management teams are
continuing in their positions.

NOTE 12. 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

F-21

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 fiscal year ended July
31, 1999, the five months ended December 31, 1999, and years ended December 31,
2000 and December 31, 2001 with respect to the Director Plan is as follows:

SHARES OPTION PRICE
(In thousands, except for Option Price)
---------------------------------------

Outstanding and exercisable as of August 1, 1998 .. 54 $3.5625 to $14.625
Granted ........................................... 20 $11.1563 to $14.625
Cancelled ......................................... (6) $12.0313 to $14.625
---------------------------------------
Outstanding and exercisable as of July 31, 1999 ... 68 $3.5625 to $14.625
Granted ........................................... 8 $12.3125 to $13.875
---------------------------------------
Outstanding and exercisable as of December 31, 1999 76 $3.5625 to $14.625
Granted ........................................... 18 $9.1875 to $12.84
---------------------------------------
Outstanding and exercisable as of December 31, 2000 94 $3.5625 to $14.625
Granted ........................................... 16 $6.80 to $14.65
Exercised ......................................... (6) $9.1875 to $11.25
---------------------------------------
OUTSTANDING AND EXERCISABLE AS OF DECEMBER 31, 2001 104 $3.5625 to $14.625
=======================================

As of December 31, 2001 the number of shares available for grant was 54,000.

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 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 fiscal year
ended July 31, 1999, the five months ended December 31, 1999, and years ended
December 31, 2000 and December 31, 2001 with respect to the 1991 Plan is as
follows:

SHARES OPTION PRICE
(In thousands, except for Option Price)
---------------------------------------

Outstanding at August 1, 1998 ..... 422 $3.25 to $14.5625
Granted ........................... 174 $11.125 to $12.875
Exercised ......................... (63) $3.25 to $11.125
Cancelled ......................... (24) $9.375 to $11.125
---------------------------------------
Outstanding as of July 31, 1999 ... 509 $3.25 to $14.5625
Granted ........................... 140 $12.125 to $13.50
Exercised ......................... (22) $3.25 to $11.125
Cancelled ......................... (52) $11.00 to $14.5625
---------------------------------------
Outstanding as of December 31, 1999 575 $3.25 to $13.50
Granted ........................... 145 $9.781 to $12.00
Exercised ......................... (63) $3.25 to $9.375
Cancelled ......................... (34) $6.875 to $13.50
---------------------------------------
Outstanding as of December 31, 2000 623 $3.25 to $13.50
Granted ........................... 486 $5.75 to $12.175
Exercised ......................... (35) $6.875 to $13.50
Cancelled ......................... (18) $3.25 to $13.50
---------------------------------------
OUTSTANDING AS OF DECEMBER 31, 2001 1,056 $3.25 to $13.50
---------------------------------------

F-22

The number of shares exercisable as of December 31, 2001 was 536,000.

During fiscal 1991, the Board of Directors approved the granting of nonqualified
stock options to purchase 110,000 shares at an option price of $4.13 to the
Chief Executive Officer of the Company. In fiscal 1992, an option to purchase
50,000 shares was granted to another officer of the Company at an option price
of $3.25, with an expiration date of November 30, 1998. Options for 25,100 and
24,900 shares were exercised during fiscal 1998 and 1999, respectively. In
fiscal 1996, an option to purchase 50,000 shares was granted to a subsidiary
officer at an option price of $8.375 and was exercisable 20% at July 31, 1997,
and 50%, 20% and 10% on or after October 13, 1997, April 13, 1998, and April 13,
1999, respectively, with no expiration date, except in the event of termination,
disability or death, provided that the subsidiary officer has been employed
through such date. Options for 8,000 shares, 10,000 shares and 34,000 shares
were exercised during the fiscal year ended July 31, 1998, the five months ended
December 31, 1999, and year ended December 31, 2000, respectively. The remaining
options are exercisable at any time after the date of grant with no expiration
date, except in the event of termination, disability or death. All of the option
prices are equivalent to 100% of market value at date of grant.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized in the
accompanying consolidated statements of operations for its stock-based
compensation plans. 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 methodology prescribed under SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income (loss) and
net income (loss) per common share would have been as follows:

Net income (loss) - as
reported .................. $(10,650,000) $1,700,000 $5,406,000 $(684,000) $1,961,000
Net income (loss) - pro forma $(11,389,000) $1,153,000 $4,799,000 $(909,000) $1,695,000
Diluted net income (loss) per
common share as reported ... $ (1.87) $ .30 $ .92 $ (.12) $ .33
Diluted net income (loss) per
common share pro forma ..... $ (2.00) $ .20 $ .82 $ (.16) $ .29

F-23

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:

Expected dividend yield ........... 0.0% .94% .73% .38% .33%
Expected stock price volatility ... 45.95% 29.58% 29.7% 29.58% 36.6%
Risk-free interest rate ........... 5.0% 6.3% 5.0% 6.1% 4.9%
Expected life of option ........... 7 years 7 years 7 years 7 years 7 years

Transactions from August 1, 1998 through December 31, 2001, under the above
plans, were as follows:

Number of Weighted Average
Shares Option Price Weighted Life Remaining
(In thousands) per Share Average Price (Years)
------------------------------------------------------------------------------

Outstanding as of August 1, 1998 .. 653 $3.25 to $14.625 $ 7.67 6.73
Granted ........................... 194 $11.125 to $14.625
Exercised ......................... (88) $3.25 to $11.125
Cancelled ......................... (30) $9.375 to $14.625
------------------------------------------------------------------------------
Outstanding as of July 31, 1999 ... 729 $3.25 to $14.625 $ 8.85 6.71
Granted ........................... 148 $12.125 to $13.875
Exercised ......................... (32) $3.25 to $11.156
Cancelled ......................... (52) $11.00 to $14.5625
------------------------------------------------------------------------------
Outstanding as of December 31, 1999 793 $3.25 to $14.625 $ 9.46 6.80
Granted ........................... 163 $9.1875 to $12.84
Exercised ......................... (97) $3.25 to $9.375
Cancelled ......................... (34) $6.875 to $13.50
------------------------------------------------------------------------------
Outstanding as of December 31, 2000 825 $3.25 to $14.625 $10.06 6.64
Granted ........................... 502 $5.75 to $12.175
Exercised ......................... (41) $6.875 to $13.50
Cancelled ......................... (18) $3.25 to $13.50
------------------------------------------------------------------------------
OUTSTANDING AS OF DECEMBER 31, 2001 1,268 $3.25 to $14.625 $ 9.56 7.98
------------------------------------------------------------------------------
EXERCISABLE AS OF DECEMBER 31, 2001 749 $3.25 to $14.625 $ 9.56
------------------------------------------------------------------------------

The following tables segregate the outstanding options and exercisable options
as of December 31, 2001, into five ranges:

Options Outstanding Range of Option Prices Weighted Weighted Average Life Remaining
(In thousands) per Share Average Price (Years)
-------------------------------------------------------------------------------------------------------------------

162 $3.25 to $5.6875 $ 4.074442 7.08
369 $5.75 to $10.875 $ 6.777959 8.46
288 $11.00 to $12.00 $11.379993 7.18
314 $12.0313 to $13.0625 $12.289174 8.77
135 $13.50 to $14.625 $13.571681 7.65
-----
1,268
-----

Options Exercisable Range of Option Prices Weighted
(In thousands) per Share Average Price
--------------------------------------------------------------------------------

163 $3.25 to $5.6875 $ 4.074442
165 $5.75 to $10.875 $ 7.544435
209 $11.00 to $12.00 $11.323752
127 $12.0313 to $13.0625 $12.437501
85 $13.50 to $14.625 $13.614000
-----
749
-----

F-24

NOTE 13. CASH FLOW INFORMATION

For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments, purchased with an original maturity of three
months or less, to be cash equivalents.

In accordance with Statement of Financial Accounting Standard No. 95, "Statement
of Cash Flows", cash flows from Elektro-Metall Export GmbH's ("EME") operations
are calculated based on their reporting currencies. As a result, amounts related
to assets and liabilities reported on the consolidated cash flows will not
necessarily agree with the translation adjustment recorded on the consolidated
balance sheet. The effect of exchange rate changes on cash balances held in
foreign currencies is reported on a separate line in the statement of cash
flows.

In November 2001, EME received approximately $4,100,000 as a progress payment
related to a customer contract. The contract requires that the cash received
from this progress payment be specifically utilized for expenditures related to
EME's performance under this program. As of December 31, 2001, approximately
$3,600,000 of this progress payment is included as a component of other accrued
liabilities in the accompanying consolidated balance sheet.

Supplemental disclosures of cash flow information:

Interest paid ..... $3,378 $3,026 $ 950 $ 970 $434
Income taxes paid . $1,891 $1,288 $3,208 $1,646 $509

Non-cash investing and financing activities:

During 2001, the Company sold substantially all of the assets of SL Waber and
the stock of Waber de Mexico S.A. de C.V. for $1,053,000. In conjunction with
this sale, net assets deconsolidated were as follows:

Book value of net assets sold ............. $3,798,000
Cash received ............................. $1,053,000

During fiscal 1999, Condor acquired certain of the net operating assets of Todd
Products for $7,430,000. In conjunction with the acquisition, liabilities were
assumed as follows:

Fair value of assets acquired .............. $12,738,000
Cash paid .................................. $ 7,430,000
Liabilities assumed ........................ $ 5,308,000

During fiscal 1999, the Company acquired all of the capital stock of RFL for
$12,462,000. In conjunction with the acquisition, liabilities were assumed as
follows:

Fair value of assets acquired .............. $16,417,000
Cash paid .................................. $12,387,000
Liabilities assumed ........................ $ 5,166,000

F-25

NOTE 14. INDUSTRY SEGMENTS

During the years ended December 31, 2000 and July 31, 1999 and the five months
ended December 31, 1999 and December 31, 1998, the Company was comprised of six
business segments: Power Supplies, Power Conditioning and Distribution Units,
Motion Control Systems, Electric Utility Equipment Protection Systems, Surge
Suppressors and Other. The Surge Suppressor segment was discontinued in 2001 as
a result of the sale of the assets of SL Waber. For the year ended December 31,
2001, the Company changed the composition of its reportable segments to
individual operating business units. Segment information for all periods
presented has been restated to conform with the December 31, 2001 presentation.
At December 31, 2001, the Company was comprised of six operating business units.
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. EME is a leader in electromechanical actuation systems,
power drive units, and complex wire harness systems for use in the aerospace and
automobile industries. 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
provides customer service and maintenance for all electric utility equipment
protection systems. SurfTech produces industrial coatings and platings for
equipment in the corrugated paper and telecommunications industries. The other
segment includes corporate related items not allocated to reportable segments
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). The Company's
reportable business units are managed separately because each offers different
products and services and requires different marketing strategies.

Business unit operations are conducted through domestic and foreign
subsidiaries. For all periods presented, sales between business units were not
material. No single customer accounted for more than 10% of consolidated net
sales or a segment's net sales during 2001, 2000, fiscal 1999, or the five
months ended December 31, 1999 or December 31, 1998.

NET SALES
Condor ..... $ 48,742 $ 62,567 $30,428 $25,341 $11,778
Teal ....... 13,320 21,832 15,156 8,609 5,600
SL-MTI ..... 19,262 14,201 15,081 5,765 5,894
EME ........ 25,609 22,541 19,992 8,122 8,394
RFL ........ 28,447 24,426 5,274 10,073 --
Surf Tech .. 3,087 2,838 2,763 1,122 1,143
------------------------------------------------------------------------------
Consolidated $138,467 $148,405 $88,694 $59,032 $32,809
==============================================================================

F-26

Condor .................................. $ 1,226 $ 4,203 $ 5,776 $ 2,118 $2,289
Teal .................................... 603 3,803 1,987 1,350 424
SL-MTI .................................. 1,981 1,032 1,223 (91) 336
EME ..................................... 3,152 2,082 1,654 956 482
RFL ..................................... 3,230 2,523 510 1,167 --
Surf Tech ............................... (760) (115) 10 94 9
Other expenses and Corporate office ..... (6,188) (1,637) (407) (1,023) (559)
Write-down of inventory (a) ............. (2,940) -- -- -- --
Restructuring charges (b) ............... (3,868) -- -- -- --
Impairment of intangible assets (c) ..... (4,270) -- -- -- --
Settlement of class action suit ......... -- 875 -- -- --
------------------------------------------------------------------------------
Income (loss) from operations ........... (7,834) 12,766 10,753 4,571 2,981
Demutualization of life insurance company -- -- -- 1,812 --
Interest income ......................... 366 344 250 75 120
Interest expense ........................ (3,407) (3,045) (991) (1,077) (391)
------------------------------------------------------------------------------
Income (loss) from continuing operations
before taxes ............................ $(10,875) $10,065 $10,012 $ 5,381 $2,710
==============================================================================

(a) Includes $2,890 and $50 related to Condor and Surf Tech, respectively (see
Note 16).

(b) Includes $3,683 and $185 related to Condor and Surf Tech, respectively (see
Note 16).

As of As of
December 31, December 31,
2001 2000
-----------------------------
IDENTIFIABLE ASSETS (In thousands)

Condor ......................... $ 20,740 $ 31,889
Teal ........................... 9,834 11,108
SL-MTI ......................... 11,637 9,410
EME ............................ 23,524 18,215
RFL ............................ 17,445 16,193
Surf Tech ...................... 3,929 3,533
Other including Corporate Office 20,649 23,133
-------- --------
Consolidated ................... $107,758 $113,481
======== ========

Condor ......................... $ 578 $ 270 $ 203 $151 $ 136
Teal ........................... 11 122 235 121 158
SL-MTI ......................... 196 280 760 52 659
EME ............................ 632 398 340 128 130
RFL ............................ 195 434 151 297 --
Surf Tech ...................... 671 958 163 98 117
Other including Corporate Office 59 101 49 2 47
------------------------------------------------------------------------------
Consolidated ................... $2,342 $2,563 $1,901 $849 $1,247
==============================================================================

(1) Excludes assets acquired in business combinations.

F-27

Condor ......................... $1,745 $1,581 $ 679 $ 626 394
Teal ........................... 762 836 873 369 372
SL-MTI ......................... 395 403 378 173 163
EME ............................ 418 394 570 184 207
RFL ............................ 795 770 169 328 --
Surf Tech ...................... 386 301 252 106 110
Other including Corporate Office 86 94 171 44 --
-----------------------------------------------------------------------------
Consolidated ................... $4,587 $4,379 $3,092 $1,830 $1,246
=============================================================================

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

United States ... $100,796 $113,731 $64,895 $46,354 $23,314
Germany ......... 20,762 17,856 14,917 6,378 7,019
Other Foreign ... 16,909 16,818 8,882 6,300 2,476
--------------------------------------------------------------------------
Consolidated .... $138,467 $148,405 $88,694 $59,032 $32,809
==========================================================================
LONG-LIVED ASSETS
United States ... $ 22,407 $ 28,961 $30,529 $28,146 $12,854
Germany ......... 9,407 9,215 9,639 9,454 10,034
Other Foreign ... 1,814 2,375 1,570 2,688 417
--------------------------------------------------------------------------
Consolidated .... $ 33,628 $ 40,551 $41,738 $40,288 $23,305
==========================================================================

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

NOTE 15. FOREIGN OPERATIONS

In addition to manufacturing operations in California, Minnesota, New Jersey and
Maryland, the Company manufactures substantial quantities of products in leased
premises located in Mexicali and Matamoros, Mexico; Ingolstadt, Germany; and
Paks, Hungary. These external and foreign sources of supply present risks of
interruption for reasons beyond the Company's control, including political and
other uncertainties. During the year ended December 31, 2001, the Company
manufactured products in two additional facilities in Mexico. The Condor plant
in Reynosa, Mexico was closed in March 2002, and the SLW Holdings plant in
Nogales, Mexico was sold in September 2001.

Generally, the Company's sales are priced in United States dollars and German
marks (European Union euros effective January 1, 2002), and its costs and
expenses are priced in United States dollars, Mexican pesos, German marks
(European Union euros effective January 1, 2002), and Hungarian forints.
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. Foreign sales comprised
27%, 23% and 27% of sales for the years ended December 31, 2001 and December 31,
2000, and fiscal year

F-28

ended July 31, 1999, respectively. Foreign sales comprised 21% and 29% of sales
for the five months ended December 31, 1999 and 1998, respectively.
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, German mark (European Union euro effective January 1, 2002),
and Hungarian forint. As of December 31, 2001, the Company had net liabilities
of $241,000 subject to fluctuations in the value of the Mexican peso, net assets
of $4,578,000 subject to fluctuations in the value of the German mark, and net
assets of $507,000 subject to fluctuations in the value of the Hungarian forint.
Fluctuations in the value of the Mexican peso, German mark, and Hungarian forint
have not been significant in 2000 and 2001. However, there can be no assurance
that the value of the Mexican peso, European Union euro, or Hungarian forint
will continue to remain stable.

EME manufactures all of its products in Germany or Hungary and incurs its costs
in German marks (European Union euros effective January 1, 2002) or Hungarian
forints. EME's sales are priced in German marks (European Union euros effective
January 1, 2002) and United States dollars. Condor manufactures substantially
all of its products in Mexico and incurs its labor costs and supplies in Mexican
pesos. SL-MTI manufactures an increasing amount of its products in Mexico and
incurs related labor costs and supplies in Mexican pesos. Both Condor and SL-MTI
price their sales in United States dollars. EME maintains its books and records
in German marks (European Union euros effective January 1, 2002), and its
Hungarian subsidiary maintains its books and records in Hungarian forints. The
Mexican subsidiaries of Condor and SL-MTI maintain their books and records in
Mexican pesos.

NOTE 16. RESTRUCTURING COSTS AND IMPAIRMENT CHARGES

The Company recorded restructuring, impairment charges, and inventory
write-downs during the year ended December 31, 2001 summarized as follows:

Impairment Inventory
Restructuring of Write-
Costs Intangibles downs
-------------------------------------------
(In thousands)

Condor - intangible asset impairment .... $ -- $4,145 $ --
Condor - workforce reduction and other .. 3,683 -- --
Condor - inventory write-off ............ -- -- 2,890
Surf Tech - intangible asset impairment . -- 125 --
Surf Tech - fixed asset write-offs ...... 125 -- --
Surf Tech - workforce reduction and other 60 -- --
Surf Tech - inventory write-off ......... -- -- 50
-------------------------------------------
Total restructuring and impairment
charges .............................. $3,868 $4,270 $2,940
===========================================

The Condor restructuring charge relates to the closure of its facility in
Reynosa, Mexico. The workforce reduction charges are primarily for severance
costs and are discussed more fully below.

During 2001, the Company implemented a plan to restructure certain of its
operations as a result of a significant reduction in the demand for products by
telecommunications equipment

F-29

manufacturers. The sharp decrease in orders for telecommunications-related
products occurred abruptly in the first quarter and continued to the end of
2001. As a result, the Company needed to reduce its fixed costs and
manufacturing capacity in line with substantially lower sales forecasts.

The restructuring plan was designed to address these requirements in a
deliberate manner that would not overburden the Company's personnel and monetary
resources. It consisted of the following actions:

1) the closure of Condor's engineering and sales support facility
in Brentwood, New York;
2) the closure of Condor's manufacturing facility in Reynosa,
Mexico; and
3) the substantial reduction in employees and staff at Condor's
continuing manufacturing facilities in Mexicali, Mexico and
headquarters in Oxnard, California.

The charge for facility closures relates primarily to the write-off of equipment
and other fixed assets to be disposed of or abandoned. A portion of the charge
represents the Company's estimate of the future lease commitments and buyout
options for closed facilities. The Company anticipates that such facilities will
be closed and assets will be disposed of by the end of the second quarter of
2002. Lease payments for the closed facilities extend into 2003.

The restructuring plan included the termination of approximately 828 employees,
and payment of related severance benefits. Approximately 810 employees have been
terminated as of December 31, 2001. The remaining terminations and associated
termination payments are expected to be effected in the first quarter of 2002.

As of December 31, 2001, approximately $1,163,000 of the restructuring costs is
included as a component of other accrued liabilities in the accompanying
consolidated balance sheet.

NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
March 31, 2001 June 30, 2001 September 30, 2001 December 31, 2001
------------------------------------------------------------------------------
(In thousands, except per share data)
TWELVE MONTHS ENDED DECEMBER 31, 2001

Net sales (a) ................................. $37,582 $32,479 $33,968 $34,438
Gross margin (b) .............................. $12,294 $ 7,102 $11,347 $11,321
Income (loss) from continuing operations before
income taxes (c) .............................. $ 1,359 $(4,734) $(1,489) $(6,011)
Net income (loss) (d) ......................... $ 479 $(5,312) $(2,710) $(3,107)
Diluted net income per common share ........... $ 0.08 $ (0.93) $ (0.47) $ (0.54)

(a) Excludes net sales from discontinued
operations of ............................. $ 6,145 $ 2,913 $ 1,258 $ --
(b) Excludes gross margin from discontinued
operations of ............................. $ 589 $ 393 $ (338) $ --
(c) Excludes income (losses) before income
taxes from discontinued operations of ..... $ (500) $(1,063) $(5,461) $ 1,884
(d) Includes income (losses) from
discontinued operations net of
tax ....................................... $ (32) $(2,586) $(1,626) $ 297

F-30

----------------------------------------------------------------------------
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
March 31, 2000 June 30, 2000 September 30, 2000 December 31, 2000
----------------------------------------------------------------------------
(In thousands, except per share data)

TWELVE MONTHS ENDED DECEMBER 31, 2000

Net sales (e) .................................. $37,409 $39,098 $36,260 $35,638
Gross margin (f) ............................... $13,862 $13,985 $11,111 $12,152
Income from continuing operations
before income taxes (g) ................ $ 2,648 $ 2,899 $ 2,390 $ 2,128
Net income (loss)(h) ........................... $ 548 $ 796 $ 729 $ (373)
Diluted net income per common share ............ $ 0.09 $ 0.14 $ 0.13 $ (0.07)

(e) Excludes net sales from discontinued
operations of .............................. $ 6,128 $ 5,046 $ 4,582 $ 3,585
(f) Excludes gross margin from discontinued
operations of .............................. $ 1,201 $ 977 $ 325 $ (430)
(g) Excludes (losses) before income taxes
from discontinued operations of ............ $(1,567) $(1,546) $(1,763) $(2,902)
(h) Includes (losses) from discontinued
operations net of tax ...................... $(1,007) $ (996) $(1,119) $(1,601)

F-31

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

---------------------------------------------------------------------------------------------------------------------------------
Additions
---------
Balance at Charged to Charged
Beginning Costs and to Other Balance at End of
Description of Period Expenses Accounts Deductions Period
---------------------------------------------------------------------------------------------------------------------------------
(In thousands)

TWELVE MONTHS ENDED DECEMBER 31, 2001
Allowance for:
Doubtful accounts ............................ $560 $469 $ -- $461(b) $568

TWELVE MONTHS ENDED DECEMBER 31, 2000
Allowance for:
Doubtful accounts ............................ $416 $389 $ 40(a) $285(b) $560

TWELVE MONTHS ENDED JULY 31, 1999
Allowance for:
Doubtful accounts ............................ $233 $ 40 $142(a) $ 35(b) $380

FIVE MONTHS ENDED DECEMBER 31, 1999
Allowance for:
Doubtful accounts ............................ $380 $ 10 $ 58(a) $ 32(b) $416

FIVE MONTHS ENDED DECEMBER 31, 1998 (Unaudited)
Allowance for:
Doubtful accounts ............................ $233 $ 13 $ 32(a) $ 0(b) $278

(a) Due to reclassifications.
(b) Accounts receivable written off, net of recoveries.

F-32

SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS

June 30, December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,722,000 $ 6,577,000
Receivables, net 21,762,000 36,041,000
Inventories 19,582,000 20,497,000
Prepaid expenses 997,000 815,000
Deferred income taxes 6,452,000 6,300,000
------------- -------------
Total current assets 51,515,000 70,230,000
Property, plant and equipment, less accumulated depreciation
of $20,866,000 and $18,941,000, respectively 18,574,000 18,829,000
Deferred income taxes 2,048,000 2,014,000
Cash surrender value of life insurance policies 949,000 1,323,000
Intangible assets, less accumulated amortization
of $6,216,000 and $6,017,000, respectively 14,602,000 14,799,000
Other assets 437,000 563,000
------------- -------------
Total assets $ 88,125,000 $ 107,758,000
------------- -------------

LIABILITIES
Current liabilities:
Short-term bank debt $ 2,534,000 $ 1,367,000
Long-term debt due within one year 20,387,000 35,829,000
Accounts payable 5,673,000 8,149,000
Accrued income taxes 1,717,000 2,019,000
Accrued liabilities:
Payroll and related costs 5,585,000 7,609,000
Other 10,663,000 11,781,000
------------- -------------
Total current liabilities 46,559,000 66,754,000
Long-term debt less portion due within one year 62,000 1,009,000
Deferred compensation and supplemental retirement benefits 4,252,000 4,268,000
Other liabilities 2,771,000 2,523,000
------------- -------------
Total liabilities 53,644,000 74,554,000
------------- -------------

Commitments and contingencies (Note 8)

SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized, 6,000,000 shares; none issued -- --
Common stock, $.20 par value; authorized, 25,000,000 shares;
issued, 8,298,000 shares 1,660,000 1,660,000
Capital in excess of par value 38,788,000 39,025,000
Retained earnings 8,852,000 8,897,000
Accumulated other comprehensive income (loss) 397,000 (5,000)
Treasury stock at cost, 2,394,000 and 2,587,000 shares, respectively (15,216,000) (16,373,000)
------------- -------------
Total shareholders' equity 34,481,000 33,204,000
------------- -------------
Total liabilities and shareholders' equity $ 88,125,000 $ 107,758,000
------------- -------------

See accompanying notes to consolidated financial statements.

F-33

SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three-Months Ended * Six-Months Ended *
June 30, June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------

Net sales $ 34,409,000 $ 32,479,000 $ 67,356,000 $ 70,061,000
------------ ------------ ------------ ------------
Cost and expenses:
Cost of products sold 23,369,000 22,486,000 44,702,000 47,774,000
Write-down of inventory -- 2,890,000 -- 2,890,000
Engineering and product development 1,834,000 2,253,000 4,050,000 4,581,000
Selling, general and administrative 7,576,000 6,659,000 14,862,000 13,489,000
Depreciation and amortization 870,000 1,167,000 1,744,000 2,313,000
Special charges 9,000 -- 1,834,000 --
Restructuring costs 40,000 1,108,000 265,000 1,108,000
------------ ------------ ------------ ------------
Total cost and expenses 33,698,000 36,563,000 67,457,000 72,155,000
------------ ------------ ------------ ------------
Income (loss) from operations 711,000 (4,084,000) (101,000) (2,094,000)
Other income (expense):
Interest income 62,000 107,000 140,000 179,000
Interest expense (431,000) (757,000) (985,000) (1,460,000)
------------ ------------ ------------ ------------
Income (loss) from continuing operations before income taxes 342,000 (4,734,000) (946,000) (3,375,000)
Income tax provision (benefit) 11,000 (2,008,000) (588,000) (1,160,000)
------------ ------------ ------------ ------------
Income (loss) from continuing operations 331,000 (2,726,000) (358,000) (2,215,000)
Discontinued operations (net of tax) -- (2,586,000) 313,000 (2,618,000)
------------ ------------ ------------ ------------
Net income (loss) $ 331,000 $ (5,312,000) $ (45,000) $ (4,833,000)
============ ============ ============ ============

BASIC NET INCOME (LOSS) PER COMMON SHARE
Income (loss) from continuing operations $ 0.06 $ (0.48) $ (0.06) $ (0.39)
Discontinued operations (net of tax) -- (0.45) 0.05 (0.46)
------------ ------------ ------------ ------------
Net income (loss) $ 0.06 $ (0.93) $ (0.01) $ (0.85)
============ ============ ============ ============

DILUTED NET INCOME (LOSS) PER COMMON SHARE
Income (loss) from continuing operations $ 0.06 $ (0.48) $ (0.06) $ (0.39)
Discontinued operations (net of tax) -- (0.45) 0.05 (0.46)
------------ ------------ ------------ ------------
Net income (loss) $ 0.06 $ (0.93) $ (0.01) $ (0.85)
============ ============ ============ ============

Shares used in computing basic net income (loss)
per common share 5,894,000 5,705,000 5,839,000 5,690,000
Shares used in computing diluted net income (loss)
per common share 5,930,000 5,705,000 5,839,000 5,690,000

* RECLASSIFIED FOR COMPARATIVE PURPOSES ONLY.

See accompanying notes to consolidated financial statements.

F-34

SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)

Three-Months Ended Six-Months Ended
June 30, June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------

Net income (loss) $ 331,000 $(5,312,000) $ (45,000) $(4,833,000)
Other comprehensive income (loss):
Currency translation adjustment, net of related taxes 389,000 (38,000) 402,000 (26,000)
----------- ----------- ----------- -----------
Comprehensive income (loss) $ 720,000 $(5,350,000) $ 357,000 $(4,859,000)
=========== =========== =========== ===========

See accompanying notes to consolidated financial statements.

F-35

SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JULY 1, 2001
(UNAUDITED)

2002 2001
------------ ------------

OPERATING ACTIVITIES:
Net loss from continuing operations $ (358,000) $ (2,215,000)
Adjustments to reconcile net loss from continuing operations
to net cash provided by operating activities:
Depreciation 1,427,000 1,509,000
Amortization 317,000 804,000
Restructuring charges 265,000 1,108,000
Write-down of inventory -- 2,890,000
Provisions for losses on accounts receivable (30,000) 185,000
Additions to other assets 9,000 (78,000)
Cash surrender value of life insurance premiums 31,000 (653,000)
Deferred compensation and supplemental retirement benefits 248,000 329,000
Deferred compensation and supplemental retirement benefit payments (1,780,000) (264,000)
(Increase) decrease in deferred income taxes 349,000 (1,707,000)
(Gain) loss on sales of equipment (6,000) 1,000
Investment in Kreiss Johnson -- 56,000
Changes in operating assets and liabilities, excluding effects of business disposition:
Accounts receivable 1,818,000 425,000
Inventories 1,401,000 (759,000)
Prepaid expenses (154,000) 40,000
Accounts payable (1,675,000) (3,923,000)
Other accrued liabilities (3,946,000) (2,021,000)
Accrued income taxes 2,938,000 1,920,000
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 854,000 (2,353,000)
------------ ------------

INVESTING ACTIVITIES:
Proceeds from sales of equipment 15,000 --
Purchases of property, plant and equipment (1,120,000) (1,725,000)
Increase in notes receivable -- 19,000
Proceeds from cash surrender life insurance policies 10,676,000 --
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 9,571,000 (1,706,000)
------------ ------------

FINANCING ACTIVITIES:
Proceeds from short-term debt 917,000 873,000
Proceeds from long-term debt 10,300,000 12,645,000
Payments on long-term debt (26,711,000) (11,183,000)
Proceeds from stock options exercised 754,000 442,000
Treasury stock sold 166,000 125,000
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (14,574,000) 2,902,000
------------ ------------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 25,000 120,000
Effect of exchange rate changes on cash 269,000 (152,000)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,855,000) (1,189,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,577,000 1,189,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,722,000 $ --
============ ============

Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 1,107,000 $ 1,630,000
Income taxes $ 655,000 $ 450,000

See accompanying notes to consolidated financial statements.

F-36

SL INDUSTRIES, INC.

Notes to Consolidated Financial Statements

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. Operating results for interim
periods are not necessarily indicative of the results that may be expected for
the year ending December 31, 2002. These financial statements should be read in
conjunction with the Company's audited financial statements and notes thereon
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.

LIQUIDITY: The Company is party to a Second Amended and Restated Credit
Agreement, dated December 13, 2001, as amended (the "Revolving Credit
Facility"), that allows the Company to borrow for working capital and other
purposes. The Revolving Credit Facility contains certain financial and
non-financial covenants, including requirements for certain minimum levels of
net income and a minimum fixed charge coverage ratio, as defined therein, on a
quarterly basis. As of December 31, 2001, the Company was in violation of the
net income covenant for the fourth quarter of 2001. In addition, on March 1,
2002, the Company was notified that it was in default under the Revolving Credit
Facility due to its failure to meet the previously scheduled debt reduction to
$25,500,000 on March 1, 2002.

On May 23, 2002, the Company and its lenders reached an agreement, pursuant to
which the lenders granted a waiver of default and amendments to the violated
financial covenants, so that the Company will be in full compliance with the
Revolving Credit Facility. The agreement provides, among other things, for the
Company to pay-down outstanding borrowings by $689,000 to $25,500,000 and for
the payment to the lenders of an amendment fee of $130,000.

The Company is currently seeking to refinance the Revolving Credit Facility. The
Revolving Credit Facility matures on December 31, 2002 and provides for the
payment of a facility fee of $780,000 in the event that the Revolving Credit
Facility is not repaid by September 30, 2002 or by October 31, 2002 under
certain circumstances. There can be no assurance that the Company will be able
to refinance the Revolving Credit Facility prior to October 31, 2002 or that the
Revolving Credit Facility will be refinanced successfully. For more information
regarding the Revolving Credit Facility, see Note 6, as well as "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Quarterly Report on Form 10-Q.

The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be unable
to continue as a going concern.

F-37

2. RECEIVABLES

Receivables at June 30, 2002 and December 31, 2001 consisted of the following:

June 30, December 31,
2002 2001
--------------------------
(in thousands)

Trade receivables ..................... $ 20,161 $ 20,189
Less allowances for doubtful accounts . (321) (568)
--------------------------
19,840 19,621
Receivables for life insurance policies
surrendered ........................... -- 10,229
Recoverable income taxes .............. 1,698 4,355
Other ................................. 224 1,836
--------------------------
$ 21,762 $ 36,041
==========================

In January 2002, the Company received $10,229,000 from the surrender value of
life insurance policies. These funds were used to pay down debt under the
Company's Revolving Credit Facility. See Notes 1 and 6.

3. INVENTORIES

Inventories at June 30, 2002 and December 31, 2001 consisted of the following:

June 30, December 31,
2002 2001
---------------------------------
(in thousands)

Raw materials ....... $ 14,326 $ 15,341

Work in process ..... 6,086 5,261
Finished goods ...... 2,455 3,401
---------------------------------

22,867 24,003
Less allowances ..... (3,285) (3,506)
---------------------------------
$ 19,582 $ 20,497
=================================

4. INCOME (LOSS) PER SHARE

The Company has presented net income (loss) per common share pursuant to the
Financial Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." Basic net income (loss) per common share
is computed by dividing reported net income (loss) 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-38

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

Three Months Ended June 30,
2002 2001
(in thousands, except per share amounts)
Net Per Share Net Per Share
Income Shares Amount (Loss) Shares Amount
------- ------ -------- ------- ------ --------

Basic net income (loss)
per common share $ 331 5,894 $ 0.06 $(5,312) 5,705 $ (0.93)
Effect of dilutive
securities -- 36 -- -- -- --
------- ------ -------- ------- ------ --------
Diluted net income (loss)
per common share $ 331 5,930 $ 0.06 $(5,312) 5,705 $ (0.93)
======= ====== ======== ======= ====== ========

Six Months Ended June 30,
2002 2001
(in thousands, except per share amounts)
Net Per Share Net Per Share
Income Shares Amount (Loss) Shares Amount
------- ------ -------- ------- ------ --------

Basic net (loss)
per common share $ (45) 5,839 $ (0.01) $(4,833) 5,690 $ (0.85)
Effect of dilutive
securities -- -- -- -- -- --
------- ------ -------- ------- ------ --------
Diluted net income (loss)
per common share $ (45) 5,839 $ (0.01) $(4,833) 5,690 $ (0.85)
======= ====== ======== ======= ====== ========

For the six-month period ended June 30, 2002, common stock options of 57,224
were outstanding and for the three-month and six-month periods ended June 30,
2001, common stock options of 678,470 were outstanding but were excluded from
the diluted computation because the Company incurred a net loss and the effect
of including the options would be anti-dilutive.

For the three-month and six-month periods ended June 30, 2002, options to
purchase 472,511 and 469,315 shares of stock, respectively, were excluded from
the diluted computation because the option exercise prices were greater than the
average market price of the Company's common stock during these periods.

5. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 141, "Business Combinations" ("SFAS No.
141"), which requires all business combinations initiated after June 30, 2001 to
be accounted for using the purchase method of accounting. As a result, use of
the pooling-of-interests method is prohibited for business combinations
initiated thereafter. SFAS No. 141 also establishes criteria for the separate
recognition of intangible assets acquired in a business combination. In 2001,
the

F-39

Company adopted this statement, which did not have any impact on its
consolidated financial position or results of operations.

In June 2001, the 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 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. This statement is effective
for the Company's 2002 fiscal year. Effective January 1, 2002, the Company
adopted SFAS No. 142 and implemented certain provisions, specifically the
discontinuation of goodwill amortization, and will implement the remaining
provisions during 2002. The Company conducted its initial test for impairment 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
during the quarter. The Company anticipates testing for impairment after the
annual forecasting process is completed which will occur in the fourth quarter
of the year or as impairment indicators arise.

There were no changes in the classifications of intangible assets or their
remaining useful lives upon adoption of this pronouncement.

The following table reflects the adjustment to exclude goodwill amortization
expense (including related tax effects) recognized in the prior periods as
presented (in thousands, except per share amounts):

Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
----------------------------------------------------

Reported net income (loss) $ 331 $ (5,312) $ (45) $ (4,833)
Add back goodwill amortization -- 102 -- 185
----------------------------------------------------
Adjusted net income (loss) $ 331 $ (5,210) $ (45) $ (4,648)
====================================================

Income (loss) per share - basic
Reported net income (loss) $ .06 $ (.93) $ (.01) $ (.85)
Goodwill amortization -- .02 -- .03
----------------------------------------------------
Adjusted net income (loss) $ .06 $ (.91) $ (.01) $ (.82)
====================================================

Income (loss) per share - diluted
Reported net income (loss) $ .06 $ (.93) $ (.01) $ (.85)
Goodwill amortization -- .02 -- .03
----------------------------------------------------
Adjusted net income (loss) $ .06 $ (.91) $ (.01) $ (.82)
====================================================

F-40

been or will be disposed of rather than limiting such discontinuance to a
segment of a business. This statement is effective for the Company's 2002 fiscal
year. Effective January 1, 2002, the Company adopted this Statement, which did
not have an impact on its consolidated financial position or results of
operations.

6. DEBT

Debt consists of the following:

June 30, December 31,
2002 2001
-----------------------
(in thousands)

Short-term bank debt............ $ 2,534 $ 1,367
-----------------------

Revolving lines of credit ...... $ 20,286 $ 35,689
Mortgages payable .............. 163 1,149
-----------------------
20,449 36,838
Less portion due within one year (20,387) (35,829)
-----------------------
Long-term bank debt ............ $ 62 $ 1,009
=======================

Under the terms of the Revolving Credit Facility, the Company can borrow for
working capital and other purposes at the prime interest rate plus two percent.
Borrowings under the Revolving Credit Facility are collateralized by
substantially all of the Company's assets. The Revolving Credit Facility
contains limitations on borrowings and requires maintenance of certain financial
and non-financial covenants, the most restrictive of which require certain
levels of quarterly net income and a quarterly minimum fixed charge coverage
ratio, which is the ratio of earnings before interest, taxes, depreciation and
amortization, plus operating rent, to the sum of operating rent, capital
expenditures and interest charges. In addition, the Company is prohibited, under
the Revolving Credit Facility from paying dividends. The Revolving Credit
Facility matures on December 31, 2002 and provides for the payment of a fee of
approximately $780,000 in the event that the facility is not retired on
September 30, 2002 or in certain circumstances before October 31, 2002.

As of June 30, 2002, outstanding borrowings under the Company's Revolving Credit
Facility were $20,286,000. The Company had available borrowings of $4,672,000
under the Revolving Credit Facility as of June 30, 2002. During the second
quarter of 2002, $5,903,000 was paid against the Revolving Credit Facility.

The Company's German subsidiary Elektro-Metall Export GmbH ("EME"), also has
$5,591,000 in lines of credit with its banks in Germany that expire at various
times during 2002. Under the terms of its lines of credit, EME can borrow for
any purpose at interest rates ranging from 7.125% to 8.25%. No financial
covenants are required.

F-41

7. ACCRUED LIABILITIES OTHER

Accrued liabilities and Other at June 30, 2002 and December 31, 2001 consisted
of the following:

June 30, December 31,
2002 2001
--------------------
(in thousands)

Taxes other than ......... $ 1,054 $ 902
income
Insurance ................ 504 479
Advertising and promotions 63 79
Interest ................. 157 280
Commissions .............. 570 543
Royalties ................ 79 64
Professional fees ........ 1,221 1,389
Reserves for fees and .... 1,207 1,374
services
Deferred ................. 3,617 3,760
revenue
Other .................... 2,191 2,911
--------------------
$10,663 $11,781
====================

Included in the above accruals is a restructuring reserve of $300,000 at June
30, 2002 (there are no remaining severance payments to be made against this
reserve) and $1,163,000 at December 31, 2001. During the second quarter of 2002,
$295,000 was charged against the restructuring reserve, all of which were cash
items except an inventory write off of $57,000. The restructuring reserve
established during the year ended December 31, 2001 was primarily in response to
a significant reduction in the demand for products by telecommunication
equipment manufacturers.

8. COMMITMENTS AND CONTINGENCIES LITIGATION: In the ordinary course of 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. 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"), is
currently defending 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.
The high precision motor was developed for use in an aircraft actuation system
intended for use by Vickers Corporation. The complaint seeks compensatory
damages of approximately $3,900,000. Trial is currently scheduled for October
18, 2002.

As part of pre-trial motions, both parties filed, briefed and argued
cross-motions for summary judgement. On July 18, 2002, Eaton's motion for
partial summary judgment was granted to the limited extent that the court found
that SL-MTI sold motors to Eaton with an express warranty and an implied
warranty of merchantability. Eaton's motion was denied in all other respects
with the court indicating that the nature and extent of those warranties would
have to be decided by a jury at trial. The Company continues to believe that
it has strong defenses to Eaton's claims and intends to pursue them vigorously.

F-42

On June 12, 2002, the Company and its subsidiary SL Surface Technologies, Inc.
("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 contaminated 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 is described under
Commitments & Contingencies-Environmental below. 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. SurfTech once operated a chrome-plating
facility in Pennsauken (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 plaintiff's complaint, as well as the environmental administrative
actions discussed below.

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 firm, to
date, management has provided an estimated accrual for all known costs believed
to be probable. 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 offsets 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.

In the fourth quarter of fiscal year 1990, the Company made a provision of
$3,500,000 to cover various environmental costs for six locations, based upon
estimates prepared at that time by an independent engineering consulting firm.
In fiscal 1991, 1996 and 1999, based upon estimates, the Company made additional
provisions of $480,000, $900,000 and $375,000, respectively. The fiscal 1996
provision was necessary since, during the latter part of fiscal 1995, the New
Jersey Department of Environmental Protection required the Company to begin
additional investigation of the extent of off-site contamination at its former
facility in Wayne, New Jersey, where remediation had been underway. Based on the
results of that investigation, which were received in fiscal 1996, the Company
determined that additional remediation costs of approximately $1,000,000 were
probable.

F-43

The Company is the subject of various other lawsuits and actions relating to
environmental issues, including administrative action in connection with Surf
Tech's Pennsauken facility, 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 Company believes that it has
a significant defense against all or any part of the claim and that any material
impact is unlikely.

In December 2001, the Company received notice from the Connecticut Department of
Environmental Protection of an administrative hearing to determine
responsibility for contamination at a former industrial site located in New
Haven, Connecticut. The Company has filed motions with the administrative court
denying responsibility in this matter. Regardless of the court decision, the
Company does not believe that remediation of this site will have a material
adverse effect on its business or operations.

The Company is investigating a ground water contamination with respect to its
property in Camden, New Jersey. While a final determination of the extent of the
contamination has not been made, the Company has been informed that the cost to
remediate the property should not exceed $500,000. The Company recorded a
provision for this amount during the first quarter of 2002.

As of June 30, 2002 and December 31, 2001, the environmental accrual was
$832,000 and $290,000, respectively.

EMPLOYMENT AGREEMENTS: The Company entered into severance agreements with
certain key employees in 2001 and in prior years, that provide for one-time
payments in the event that the employee is terminated within 12 months of a
change in control, as defined. These payments range from three to 24 months of
the employee's base salary as of the termination date, as defined. All senior
divisional management teams are continuing in their positions.

9. SPECIAL CHARGES

In 2001, the Company entered into change-of-control agreements with certain
officers of the Company. On January 22, 2002, the Company held its annual
meeting of shareholders for 2001. At the annual meeting, all eight members of
the Board of Directors stood for re-election. In addition, five nominees from a
committee comprised of representatives of two institutional shareholders (such
committee, 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 and three incumbent directors were
re-elected. Following the election of the five new directors, the Company made
payments (which included

F-43

related benefits) to such officers under these change-of-control agreements
totaling approximately $1,631,000 in the first quarter of 2002 and incurred
additional proxy and legal costs of approximately $203,000.

10. NEW ACCOUNTING PRONOUNCEMENT NOT YET ADOPTED

In August 2001, the FASB issued Statement of Financial Accounting Standard No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which
provides the accounting requirements for retirement obligations associated with
tangible long-lived assets. This statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. This statement will be effective for the Company's 2003 year.
The adoption of SFAS No. 143 is not expected to have a material impact on the
Company's consolidated financial position or results of operations.

In April 2002, the FASB adopted Statement of Financial Accounting Standards 145,
rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections ("SFAS 145"). This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an
amendment of that Statement, FASB Statement No. 64, and Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB
Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. Statement No. 145 is effective for fiscal years beginning after May
15, 2002. The Company is currently evaluating the impact if any, that
implementation of this statement will have on its results of operations or
financial position.

In June 2002, The FASB Issued Statement 146 Accounting for Costs Associated with
Exit or Disposal Activities ("SFAS 146"). This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issues No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The principal
difference between this Statement and Issue 94-3 relates to its requirements for
recognition of a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3, a
liability for an exit cost as defined in Issue 94-3 was recognized at the date
of an entity's commitment to an exit plan. The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002. The Company is currently evaluating the impact if any, that implementation
of this statement will have on its results of operations or financial position.

11. SEGMENT INFORMATION

Under the disclosure requirements of Statement of Financial Accounting Standard
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
the Company classifies its operations into the following six operating business
units: Condor D.C. Power Supplies, Inc. ("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
Electronics Corporation ("Teal") is a leader

F-44

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 Montevideo
Technology, Inc. ("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. Elektro-Metall Export GmbH ("EME") is a leader in
electromechanical actuation systems, power drive units, and complex wire harness
systems for use in the aerospace and automobile industries. RFL Electronics Inc.
("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 provides customer service and
maintenance for all electric utility equipment protection systems. SL Surface
Technologies, Inc. ("Surf Tech") produces industrial coatings and platings for
equipment in the corrugated paper and telecommunications industries. The "Other"
segment includes corporate related items not allocated to reportable segments
and the results of insignificant operations. The Company's reportable business
units are managed separately because each offers different products and services
and requires different marketing strategies.

The three month and six month periods ended June 30, 2001 have been reclassified
to conform to the current reporting structure. The unaudited comparative results
for the three-month and six-month periods are as follows:

Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
----------------------------------------------
(in thousands)

Net sales from continuing operations:
Condor $ 9,457 $12,303 $17,197 $28,234
Teal 4,385 2,737 9,089 6,215
SL-MTI 6,241 4,224 11,950 8,303
EME 6,485 6,433 11,899 13,643
RFL 7,267 6,152 16,033 12,229
Surf Tech 574 630 1,188 1,437
Other -- -- -- --
----------------------------------------------
Consolidated $34,409 $32,479 $67,356 $70,061
==============================================

Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
----------------------------------------------
(in thousands)

Operating income (loss) from
continuing operations:
Condor $ (66) $(4,452) $ 195 $(3,719)
Teal 298 (7) 767 522
SL-MTI 822 340 1,326 699
EME 348 886 682 2,005
RFL 875 702 2,213 1,321
Surf Tech (178) (303) (485) (296)
Other (1,388) (1,250) (4,799) (2,626)
--------------------------------------------------
Consolidated $ 711 $(4,084) $ (101) $(2,094)
==================================================

F-45

Included in "Other" for the three months ended June 30, 2002 are corporate
expenses, environmental charges, legal and professional fees and other costs
incurred, which are Company related costs not specifically allocated to the
reportable business units. There were no significant restructuring or special
charges recorded during the current quarter.

Included in "Other" for the six months ended June 30, 2002 were special charges
of $1,834,000 related to change-of-control and proxy costs, a $542,000 addition
to the reserve for environmental matters, professional fees of $660,000 and
other expenses not specifically allocated to the reportable business units.

June 30, December 31,
2002 2001
----------------------
(in thousands)

Identifiable assets:
Condor $ 19,181 $ 20,740
Teal 9,850 9,834
SL-MTI 10,985 11,637
EME 24,308 23,524
RFL 15,564 17,445
Surf Tech 3,093 3,929
Other 5,144 20,649
----------------------
Consolidated $ 88,125 $107,758
======================

12. DISCONTINUED OPERATIONS

In July 2001, the Board of Directors authorized the disposition of the Company's
SL Waber, Inc. ("SL Waber") subsidiary. Effective August 27, 2001, substantially
all of the assets of SL Waber and the stock of its subsidiary, Waber de Mexico
S.A. de C.V. were sold. 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 the SL Waber
subsidiary 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. During the three months ended
March 31, 2002, the Company, based upon a review of potential liabilities,
reduced the accrual for the liabilities (excluding accrued income taxes)
related to SLW Holdings by $450,000.

As of June 30, 2002, the Company had $769,000 accrued for any liabilities
(excluding accrued income taxes) related to SLW Holdings, compared to $1,519,000
at December 31, 2001. See Subsequent Events Footnote 14.

13. SALE OF BUSINESS

On March 22, 2001, the Company announced, among other things, that the Board of
Directors had completed a previously announced review of strategic alternatives
and had determined that it would explore a sale of the Company in order to
maximize its value for shareholders. Credit Suisse First Boston ("CSFB")
assisted the Company's Board of Directors in its review and had been engaged to
lead this process until July 2002. See Subsequent Events Note 14.

F-46

14. SUBSEQUENT EVENTS

On July 17, 2002, the Company received notification from CSFB that CSFB was
terminating its engagement as financial advisor to the Company. The termination
was primarily the result of CSFB's internal reorganization and does not
specifically relate to the Company.

The Company's Board of Directors has determined to continue to explore a sale of
the Company or one or more of its divisions in order to maximize shareholder
value. On August 8, 2002, the company engaged Imperial Capital, LLC to act as
exclusive financial advisor to the Company. Imperial Capital, LLC will
spearhead the Company's initiative to explore a sale of some or all of its
businesses and will also assist management in its ongoing efforts to secure new
long term debt to refinance the Company's current Revolving Credit Facility.

On July 18, 2002 the Company sold its real property located in Auburn, New York
for $175,000 in cash. The Auburn property is the former industrial site of SL
Auburn, Inc., a manufacturer of spark plugs and ignition systems. SL Auburn,
Inc. was sold by the Company in May 1997. The gain from this transaction will be
recorded in the Company's third quarter financial results.

On July 31, 2002 the Company received a tax refund from Germany of
approximately $1,400,000. These proceeds were used principally to pay down the
Company's Revolving Credit Facility balance.

On August 9, 2002, the Company received a "Demand for Arbitration" with respect
to a claim of $578,000 from a former vendor of SL Waber. The claim concerns
a dispute between SL Waber and an electronics manufacturer based in Hong Kong
for alleged failure to pay for goods under a Supplier Agreement. The Company
believes this claim is without merit and intends to vigorously pursue defenses
with respect to these claims and may bring counter claims against the vendor.
Notwithstanding the outcome of these allegations, the Company does not believe
that this arbitration will have a material adverse effect on its business or
operations.

F-47

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Company in connection with the
issuance and distribution of the securities being offered. All items below are
estimates other than the Securities and Exchange Commission registration fee and
the NYSE listing fee. SL will pay all of such expenses.

Securities and Exchange Commission registration fee $ 460
NYSE listing fee...................................... *
Printing and engraving expenses....................... *
Accounting fees and expenses.......................... *
Legal fees and expenses............................... *
Subscription Agent fees and expenses.................. *
Miscellaneous......................................... *
-------------
Total..................................... $ *
=============

* To be completed by amendment.

Item 15. Indemnification of Directors and Officers.

Article VIII of the Articles of Incorporation of SL Industries, Inc.
(the "Company"') (therein referred to as the "Corporation") and Article 6 of the
Bylaws of the Company provide as follows:

The Corporation shall indemnify in the manner and to the full extent
permitted by the New Jersey Business Corporation Act, as amended, any "corporate
agent" of the Corporation (as such term is defined in Section 14A:3-5 of the New
Jersey Business Corporation Act) who was or is a party or is threatened to be
made a party to any "proceeding" (as such term is defined in said Section
14A:3-5), whether or not by or on behalf of the Corporation, by reason of the
fact that such person is or was a corporate agent of the Corporation. Where
required by law, the indemnification provided for herein shall be made only as
authorized in the specific case upon the determination, in the manner provided
by law, that indemnification of the Corporate agent is proper in the
circumstances. The Corporation, to the full extent permitted by law, may
purchase and maintain insurance on behalf of any such person against any
liability which may be asserted against him. To the full extent permitted by
law[s], the indemnification provided herein shall include "expenses" (as such
term is defined in said Section 14A:3-5) and, in the manner provided by law, any
such expenses may be paid by the Corporation in advance of the final disposition
of such proceeding. The indemnification provided herein shall not be deemed to
limit the right of the Corporation to indemnify any other person [for] any such
expenses to the full extent permitted by law nor shall it be deemed exclusive of
any other rights to which any person seeking indemnification from the
Corporation may be entitled under any agreement, vote of Shareholders or
Directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.

Item 16. Exhibits.

Exhibit # Description
--------- -----------
3.1 Articles of Incorporation. 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 By-Laws. 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.

4.1* Form of Rights Certificate.

II-1

5.1* Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP.

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 Chairman's Executive Severance Agreement. Incorporated by
reference to Exhibit 10.2 to the Company's report on Form 8
dated November 9, 1990.

10.3 First Amendment to Chairman's Executive Severance Agreement and
to Supplemental Compensation Agreement. Incorporated by
reference to Exhibit 10.3.1 to the Company's report on Form 8
dated November 9, 1990.

10.4 Second Amendment to Chairman's Executive Severance Agreement
and to Supplemental Compensation Agreement. Incorporated by
reference to Exhibit 10.3.2 to the Company's report on Form 8
dated November 9, 1990.

10.5 Third Amendment to Chairman's Executive Severance Agreement and
to Supplemental Compensation Agreement. Incorporated by
reference to Exhibit 10.3.3 to the Company's report on Form 8
dated November 9, 1990.

10.6 Fourth Amendment to Chairman's Executive Severance Agreement
and to Supplemental Compensation Agreement. Incorporated by
reference to Exhibit 10.3.2 to the Company's report on Form 8
dated November 9, 1990.

10.7 Deferred Supplemental Compensation Agreement with Grant
Heilman. Incorporated by reference to Exhibit 10.4.5 to the
Company's report on Form 8 dated November 9, 1990.

10.8 Deferred Supplemental Compensation Agreement with William Hess.
Incorporated by reference to Exhibit 10.4.6 to the Company's
report on Form 8 dated November 9, 1990.

10.9 Supplemental Compensation Agreement for the Benefit of Donald
J. Lloyd-Jones. Incorporated by reference to Exhibit 10.5.1 to
the Company's report on Form 8 dated November 9, 1990.

10.10 Supplemental Compensation Agreement for the Benefit of
Salvatore J. Nuzzo. Incorporated by reference to Exhibit 10.5.3
to the Company's report on Form 8 dated November 9, 1990.

10.11 Supplemental Compensation Agreement for the Benefit of Marlin
Miller, Jr. Incorporated by reference to Exhibit 10.5.4 to the
Company's report on Form 8 dated November 9, 1990.

10.12 Supplemental Compensation Agreement for the Benefit of Grant
Heilman. Incorporated by reference to Exhibit 10.5.5 to the
Company's report on Form 8 dated November 9, 1990.

10.13 Supplemental Compensation Agreement for the Benefit of William
M. Hess. Incorporated by reference to Exhibit 10.5.6 to the
Company's report on Form 8 dated November 9, 1990.

10.14 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.

II-2

10.15 Death Benefit Arrangement with Certain Officers adopted by
Board Resolution dated September 18, 1975. Incorporated by
reference to Exhibit 10.7 to the Company's report on Form 8
dated November 9, 1990.

10.16 Non-Qualified Stock Option Agreement dated June 19, 1991.
Incorporated by reference to Exhibit 10-A to the Company's
report on Form 10-K for the fiscal year ended July 31, 1991.

10.17 Non-Qualified Stock Option Agreement dated September 25, 1991.
Incorporated by reference to Exhibit 10-B to the Company's
report on Form 10-K for the fiscal year ended July 31, 1991.

10.18 Severance Pay Agreement with Owen Farren. Incorporated by
reference to Exhibit 10-C to the Company's report on Form 10-K
for the fiscal year ended July 31, 1991.

10.19 Severance Pay Agreement with Ted D. Taubeneck. Incorporated by
reference to Exhibit 10-D to the Company's report on Form 10-K
for the fiscal year ended July 31, 1991.

10.20 Deferred Compensation Agreement with James E. Morris.
Incorporated by reference to Exhibit 10-E to the Company's
report on Form 10-K for the fiscal year ended July 31, 1991.

10.21 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.

10.22 SL Industries, Inc. Non-Employee Director Non-Qualified Stock
Option Plan. Incorporated by reference to Exhibit 4.3 to
Registration Statement No. 33-63681, filed October 25, 1995.

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

10.24 Amendment No. 1 to Non-Qualified Stock Option Agreement dated
September 25, 1991 is incorporated herein by reference to
Exhibit 4.5 to Registration Statement on Form S-8/A (No.
33-53274) filed with the Securities and Exchange Commission on
June 18, 1996.

10.25 Non-Qualified Stock Option Agreement Incorporated by reference
to Exhibit 4.3 to Registration Statement No. 33-65445 filed
December 28, 1995.

10.26 Severance Pay Agreement with James D. Klemashevich.
Incorporated by reference to Exhibit 10.26 to the Company's
report on Form 10-K for the fiscal year ended July 31, 1997.

10.27 Severance Pay Agreement with David R. Nuzzo. Incorporated by
reference to Exhibit 10.1 to the Company's report on Form 10-K
for the fiscal year ended July 31, 1998.

10.28 Severance Pay Agreement with Jacob Cherian. Incorporated by
reference to Exhibit 10.28 to the Company's report on Form 10-K
for the fiscal year ended December 31, 2000.

10.29 Waiver and Amendment No. 1 to $40,000,000 Revolving Credit
Facility for SL Industries, Inc., Agented by Mellon Bank N.A.
Incorporated by reference to Exhibit 10 to the Company's report
on Form 8-K filed with the Securities and Exchange Commission
on July 11, 2001.

II-3

10.30 Change in Control Agreement between the Company and Mr. Owen
Farren. Incorporated by reference to Exhibit 10.1 to the
Company's report on Form 10-Q for the quarterly period ended
June 30, 2001.

10.31 Change in Control Agreement between the Company and Mr. David
R. Nuzzo. Incorporated by reference to Exhibit 10.2 to the
Company's report on Form 10-Q for the quarterly period ended
June 30, 2001.

10.32 Change in Control Agreement between the Company and Mr. Jacob
Cherian. Incorporated by reference to Exhibit 10.3 to the
Company's report on Form 10-Q for the quarterly period ended
June 30, 2001.

10.33 Amended Change in Control Agreement between the Company and Mr.
Owen Farren. Incorporated by reference to Exhibit 10.1 to the
Company's report on Form 10-Q for the quarterly period ended
September 30, 2001.

10.34 Amended Change in Control Agreement between the Company and Mr.
David R. Nuzzo. Incorporated by reference to Exhibit 10.2 to
the Company's report on Form 10-Q for the quarterly period
ended September 30, 2001.

10.35 Amended Change in Control Agreement between the Company and Mr.
Jacob Cherian. Incorporated by reference to Exhibit 10.3 to the
Company's report on Form 10-Q for the quarterly period ended
September 30, 2001.

10.36 Form of Amended and Restated Credit Agreement dated as of
December 13, 2001 among SL Industries, Inc., Mellon Bank N.A.,
as Agent, and certain other persons. Incorporated by reference
to Exhibit 10 to the Company's report on Form 8-K filed with
the Securities and Exchange Commission on December 26, 2001. 21
Subsidiaries of the Company. Incorporated by reference to
Exhibit 21 to the Company's report on Form 10-K for the fiscal
year ended December 31, 2001.

23 Notice Regarding Consent of Arthur Andersen, LLP (transmitted
herewith)

99.1 Executive Change in Control Rabbi Trust Agreement dated January
18, 2002. Incorporated by reference to Exhibit 99 to the
Company's report on Form 8-K filed with the Securities and
Exchange Commission on January 23, 2002.

99.2* Form of Instructions as to Use of Rights Certificates.

99.3* Form of Notice of Guaranteed Delivery for Rights Certificate.

99.4* Form of Letter to Shareholders Who Are Record Holders.

99.5* Form of Letter to Shareholders Who Are Beneficial Holders.

99.6* Form of Letter to Clients of Shareholders Who Are Beneficial
Holders.

99.7* Form of Nominee Holder Certification Form.

99.8* Substitute Form W-9 for Use with the Rights Offering.

II-4

99.9* Form of Beneficial Owner Election Form.

99.10* Backstop Agreement between the Company and the Investors
Identified Therein, dated as of _____________, 2002

------------------------

* To be filed by amendment.

II-5

Item 17. Undertakings.

(a) Regulation S-K, Item 512 Undertakings

(1) The undersigned registrant hereby undertakes:

(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(a) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;

(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and

(c) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.

(2) The undersigned registrant hereby undertakes that:

(i) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.

(ii) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

(3) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set
forth the results of the subscription offer, the transactions by the
underwriters during the subscription period, the amount of unsubscribed
securities to be purchased, and the terms of any subsequent reoffering
thereof. If any public offering is to be made on terms differing from
those set forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.

(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the provisions or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification is against such liabilities

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(other than the payment by the registrant of expenses incurred or paid
by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Company has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Mt. Laurel, state
of New Jersey, on October 11, 2002.

SL INDUSTRIES

By: /s/ Warren Lichtenstein
---------------------------
Warren Lichtenstein
Chairman of the Board
Chief Executive Officer

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 Registration Statement on Form S-1
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 Act of 1933, this
registration statement has been signed by the following persons in the indicated
capacities on the dates indicated.

By: /s/ Warren Lichtenstein Date: October 11, 2002
--------------------------------------------------
Warren Lichtenstein - Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)

By: /s/ Glen Kassan Date: October 11, 2002
--------------------------------------------------
Glen Kassan - President and Director

By: /s/ David R. Nuzzo Date: October 11, 2002
--------------------------------------------------
David R. Nuzzo - Vice President - Finance
and Administration, Treasurer and Secretary
(Principal Financial Officer)

By: /s/ J. Dwane Baumgardner Date: October 11, 2002
--------------------------------------------------
J. Dwane Baumgardner - Director

By: /s/ James R. Henderson Date: October 11, 2002
--------------------------------------------------
James R. Henderson - Director

By: /s/ Richard Smith Date: October 9, 2002
--------------------------------------------------
Richard Smith - Director

By: /s/ Mark E. Schwarz Date: October 9, 2002
--------------------------------------------------
Mark E. Schwarz - Director

By: /s/ Steven Wolosky Date: October 11, 2002
--------------------------------------------------
Steven Wolosky - Director

By: /s/ Avrum Gray Date: October 11, 2002
--------------------------------------------------
Avrum Gray - Director

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