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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-4987

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

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


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

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

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

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


The number of shares of common stock outstanding as of
August 2, 2004 were 5,859,153.



TABLE OF CONTENTS



PAGE
----

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003............................ 1
Consolidated Statements of Operations
Three Months Ended June 30, 2004 and 2003
and Six Months Ended June 30, 2004 and 2003.................... 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2004 and 2003........................ 3

Notes to Consolidated Financial Statements....................... 4

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 16

Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 29

Item 4. Controls and Procedures............................................ 29

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.................................................. 29

Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities.......................... 29

Item 4. Submission of Matters to a Vote of Security Holders................ 30

Item 5. Other Information.................................................. 30

Item 6. Exhibits and Reports on Form 8-K................................... 30

Signatures................................................................. 32




Item 1. Financial Statements

SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS



June 30, December 31,
2004 2003
------------ ------------
(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 4,252,000 $ 3,501,000
Receivables, net ..................................................... 18,031,000 13,064,000
Note receivable ...................................................... - 1,000,000
Inventories, net ..................................................... 13,860,000 11,009,000
Prepaid expenses ..................................................... 1,227,000 1,066,000
Deferred income taxes, net ........................................... 3,431,000 3,947,000
------------ ------------
Total current assets ............................................. 40,801,000 33,587,000

Property, plant and equipment, net ..................................... 8,865,000 9,547,000
Deferred income taxes, net ............................................. 2,102,000 2,308,000
Goodwill, net .......................................................... 10,303,000 10,303,000
Other intangible assets, net ........................................... 922,000 980,000
Other assets and deferred costs ........................................ 2,009,000 1,696,000
------------ ------------
Total assets .................................................... $ 65,002,000 $ 58,421,000
============ ============

LIABILITIES
Current liabilities:
Debt, current portion ................................................ $ 559,000 $ 887,000
Accounts payable ..................................................... 6,224,000 3,818,000
Accrued income taxes ................................................. 1,488,000 1,203,000
Accrued liabilities:
Payroll and related costs ......................................... 5,800,000 5,665,000
Other ............................................................. 5,909,000 5,402,000
------------ ------------
Total current liabilities ...................................... 19,980,000 16,975,000

Debt, less current portion ............................................. 1,735,000 2,015,000
Deferred compensation and supplemental retirement benefits ............. 3,921,000 3,904,000
Other liabilities ...................................................... 716,000 946,000
------------ ------------
Total liabilities .............................................. $ 26,352,000 $ 23,840,000
------------ ------------
Commitments and contingencies (Note 9)

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 ............................................ 39,076,000 38,863,000
Retained earnings ......................................................... 13,738,000 9,018,000
Treasury stock at cost, 2,424,000 and 2,356,000 shares, respectively ...... (15,824,000) (14,960,000)
------------ ------------
Total shareholders' equity ........................................ 38,650,000 34,581,000
------------ ------------
Total liabilities and shareholders' equity ........................ $ 65,002,000 $ 58,421,000
============ ============


See accompanying notes to consolidated financial statements.

1



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



Three-Months Ended Six-Months Ended
June 30, June 30,
2004 2003* 2004 2003*
----------- ------------ ------------ ------------

Net sales $30,508,000 $ 26,927,000 $ 57,150,000 $ 52,637,000
Cost and expenses:
Cost of products sold ................................... 19,120,000 16,590,000 36,165,000 33,258,000
Engineering and product development ..................... 2,376,000 2,070,000 4,584,000 4,025,000
Selling, general and administrative ..................... 6,256,000 5,908,000 11,976,000 11,464,000
Depreciation and amortization ........................... 468,000 470,000 942,000 946,000
----------- ------------ ------------ ------------
Total cost and expenses ................................... 28,220,000 25,038,000 53,667,000 49,693,000
----------- ------------ ------------ ------------
Income from operations .................................... 2,288,000 1,889,000 3,483,000 2,944,000
Other income (expense):
Deferred financing costs ................................ (112,000) (101,000) (224,000) (201,000)
Interest income ......................................... 18,000 31,000 61,000 96,000
Interest expense ........................................ (59,000) (96,000) (148,000) (268,000)
----------- ------------ ------------ ------------
Income from continuing operations before income taxes ..... 2,135,000 1,723,000 3,172,000 2,571,000
Income tax provision ...................................... 576,000 596,000 928,000 973,000
----------- ------------ ------------ ------------
Income from continuing operations ......................... 1,559,000 1,127,000 2,244,000 1,598,000
----------- ------------ ------------ ------------
Income (loss) from discontinued operations (net of tax) ... 20,000 (428,000) 2,476,000 (713,000)
----------- ------------ ------------ ------------
Net income ................................................ $ 1,579,000 $ 699,000 $ 4,720,000 $ 885,000
=========== ============ ============ ============

BASIC NET INCOME (LOSS) PER COMMON SHARE
Income from continuing operations ...................... $ 0.27 $ 0.19 $ 0.38 $ 0.27
Income (loss) from discontinued operations (net of tax) 0.00 (0.07) 0.42 (0.12)
----------- ------------ ------------ ------------
Net income ............................................. $ 0.27 $ 0.12 $ 0.80 $ 0.15
----------- ------------ ------------ ------------

DILUTED NET INCOME (LOSS) PER COMMON SHARE
Income from continuing operations ..................... $ 0.26 $ 0.19 $ 0.37 $ 0.27
Income (loss) from discontinued operations (net of tax) 0.00 (0.07) 0.41 (0.12)
----------- ------------ ------------ ------------
Net income ............................................ $ 0.26 $ 0.12 $ 0.79 $ 0.15
----------- ------------ ------------ ------------

Shares used in computing basic net income (loss)
per common share ....................................... 5,880,000 5,898,000 5,909,000 5,896,000
Shares used in computing diluted net income (loss)
per common share ....................................... 5,984,000 5,912,000 6,007,000 5,912,000


* RECLASSIFIED FOR COMPARATIVE PURPOSES ONLY.

See accompanying notes to consolidated financial statements.

2



SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND JUNE 30, 2003
(Unaudited)



2004 2003*
------------ ------------

OPERATING ACTIVITIES:
Net income from continuing operations ................................................... $ 2,244,000 $ 1,598,000
Adjustments to reconcile net income from continuing operations
to net cash (used in) provided by operating activities:
Depreciation ........................................................................... 808,000 854,000
Amortization ........................................................................... 134,000 101,000
Amortization of deferred financing costs ............................................... 224,000 202,000
Provisions for losses on accounts receivable ........................................... 50,000 77,000
Issuance of common stock options ....................................................... 578,000 24,000
Additions to other assets .............................................................. (79,000) (111,000)
Deferred compensation and supplemental retirement benefits ............................. 234,000 209,000
Deferred compensation and supplemental retirement benefit payments ..................... (271,000) (264,000)
(Increase) decrease in deferred income taxes ........................................... (23,000) 1,506,000
Loss/(gain) on sale of equipment ....................................................... 1,000 (1,000)
Changes in operating assets and liabilities, excluding effects of business disposition:
Accounts receivable ................................................................. (4,788,000) 494,000
Inventories ......................................................................... (2,851,000) 937,000
Prepaid expenses .................................................................... (158,000) (233,000)
Accounts payable .................................................................... 2,520,000 (1,389,000)
Other accrued liabilities ........................................................... (567,000) (1,572,000)
Accrued income taxes ................................................................ 1,831,000 (2,036,000)
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITES ....................................... (113,000) 396,000
------------ ------------

INVESTING ACTIVITIES:
Proceeds from sale of subsidiary (cash and notes receivable) ........................... 1,000,000 7,000,000
Purchases of property, plant, and equipment ............................................ (701,000) (563,000)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITES ................................................. 299,000 6,437,000
------------ ------------
FINANCING ACTIVITIES:
Payments of deferred financing costs ................................................... - (676,000)
Net proceeds from Senior Credit Facility ............................................... - 6,824,000
Payments of term loans ................................................................. (608,000) (233,000)
Payments to Revolving Credit Facility, net ............................................. - (17,557,000)
Proceeds from stock options exercised .................................................. 197,000 -
Treasury stock (purchases) sales ....................................................... (998,000) 145,000
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES .................................................... (1,409,000) (11,497,000)
------------ ------------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS ............................................. 1,974,000 1,125,000
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................................................. 751,000 3,539,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................................... 3,501,000 3,539,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................... 4,252,000 -
============ ============

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................................................ $ 154,000 $ 222,000
Income taxes ........................................................................ $ 703,000 $ 247,000



* RECLASSIFIED FOR COMPARATIVE PURPOSES ONLY.

See accompanying notes to consolidated financial statements.

3



SL INDUSTRIES, INC.

Notes to Consolidated Financial Statements (Unaudited)

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, 2004. 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, 2003. The statements of operations and cash flows for the applicable periods
ended June 30, 2003 and certain footnotes have been reclassified to reflect the
effect of discontinued operations.

LIQUIDITY

On January 6, 2003, the Company entered into a three-year senior secured credit
facility (the "Senior Credit Facility") with LaSalle Business Credit LLC. The
Senior Credit Facility provides for a revolving loan and two term loans, up to a
maximum indebtedness of $20,000,000. The revolving loan of up to $16,810,000 is
based upon eligible receivables and inventory, as well as an overadvance amount
of $1,500,000. The overadvance amount was fully paid down on April 7, 2004. The
two term loans of $2,350,000 and $840,000 are being paid down over a three-year
term. The Senior Credit Facility restricts investments, acquisitions, capital
expenditures and dividends. The Senior Credit Facility also contains financial
covenants relating to minimum levels of net worth, fixed charge coverages,
levels of earnings before interest, taxes, depreciation and amortization and
maximum levels of capital expenditures, as defined. The Company is in compliance
with all of the restrictions and covenants of the Senior Credit Facility.

2. RECEIVABLES

Receivables at June 30, 2004 and December 31, 2003 consisted of the following:



June 30, December 31,
2004 2003
-------------------------------
(in thousands)

Trade receivables ....................... $ 17,884 $ 12,656
Less allowances for doubtful accounts.... (415) (365)
---------- ------------
17,469 12,291

Recoverable income taxes ................ 137 406
Other ................................... 425 367
---------- ------------
$ 18,031 $ 13,064
========== ============


4



3. INVENTORIES

Inventories at June 30, 2004 and December 31, 2003 consisted of the following:



June 30, December 31,
2004 2003
------------------------------
(in thousands)

Raw materials...................... $ 10,699 $ 8,384
Work in process.................... 4,097 3,769
Finished goods..................... 2,019 1,494
-------- ------------
16,815 13,647
Less allowances.................... (2,955) (2,638)
-------- ------------
$ 13,860 $ 11,009
======== ============


4. INCOME PER SHARE

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

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



Three Months Ended June 30,
2004 2003
----------------------------------------------------------------------
(in thousands, except per share amounts)
----------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------

Basic net income per common share $1,579 5,880 $ 0.27 $ 699 5,898 $ 0.12
Effect of dilutive securities - 104 - - 14 -
------ ------ --------- ------ ------ ---------
Diluted net income per common share $1,579 5,984 $ 0.26 $ 699 5,912 $ 0.12
====== ====== ========= ====== ====== =========


5





Six Months Ended June 30,
2004 2003
----------------------------------------------------------------------
(in thousands, except per share amounts)
----------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------

Basic net income per common share $4,720 5,909 $ 0.80 $ 885 5,896 $ 0.15
Effect of dilutive securities - 98 - - 16 -
------ ------ --------- ------ ------ ---------
Diluted net income per common share $4,720 6,007 $ 0.79 $ 885 5,912 $ 0.15
====== ====== ========= ====== ====== =========


For the six-month periods ended June 30, 2004 and June 30, 2003, common stock
options of 473,501 and 492,475, respectively, were excluded from the diluted
computations because the option exercise prices were greater than the average
market price of the Company's common stock during these periods.

STOCK BASED COMPENSATION

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

As permitted by the FASB, the Company has elected to follow APB No. 25 and
related interpretations in accounting for its stock option plans. Under APB
Opinion No. 25, compensation expense is measured as the excess, if any, of the
fair value of the Company's common stock at the date of the grant over the
amount a grantee must pay to acquire the stock. The Company's stock option plans
enable the Company to grant options with an exercise price not less than the
fair value of the Company's common stock at the date of the grant. However, the
Company has recognized approximately $184,000 and $428,000 in the three month
period ended June 30, 2004 and the six month period ended June 30, 2004,
respectively, in compensation expense related to certain stock based
compensation arrangements.

6


The exercise price of all stock options generally equals the market price of the
Company's common stock on the date of grant. Compensation cost has been
recognized for the Company's stock option plans as noted in the table below. Had
compensation cost for the Company's stock option plans been determined based
upon the fair value at the grant date for awards under these plans, consistent
with the methodology prescribed under SFAS No. 123, the Company's net income and
net income per common share would have been as follows:



Three Months Ended June 30, Six Months Ended June 30,
2004 2003 2004 2003
-------------------------------------------------------------
(in thousands, except per share amounts)

Net income, as reported $ 1,579 $ 699 $ 4,720 $ 885
Add: Stock-based employee compensation
expense included in reported net
income, net of related tax effects $ 112 $ 15 $ 302 $ 15
------- ------- ------- -------
$ 1,691 $ 714 $ 5,022 $ 900
Deduct: Total stock-based employee
compensation expense determined under fair value
based method for awards granted, modified, or
settled, net of related tax effects (191) (185) (445) (509)
------- ------- ------- -------
Pro forma net income $ 1,500 $ 529 $ 4,577 $ 391
======= ======= ======= =======

Earnings per common share:
Basic - as reported $ 0.27 $ 0.12 $ 0.80 $ 0.15
Basic - pro forma $ 0.26 $ 0.09 $ 0.77 $ 0.07

Diluted - as reported $ 0.26 $ 0.12 $ 0.79 $ 0.15
Diluted - pro forma $ 0.25 $ 0.09 $ 0.76 $ 0.07


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:



Six Months Ended Six Months Ended
June 30, June 30,
2004 2003
---------------- ----------------

Expected dividend yield 0.0% 0.0%
Expected stock price volatility 61.29% 61.61%
Risk-free interest rate 2.81% 2.69%
Expected life of stock option 5 years 5 years


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

7


5. RECENT AND PROPOSED ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB revised Statement No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits." The FASB's revision of
Statement No. 132 requires new annual disclosures about the types of plan
assets, investment strategy, measurement date, plan obligations and cash flows,
as well as the components of the net periodic benefit cost recognized in interim
periods. In addition, companies are now required to disclose their estimates of
contributions to their plans during the next fiscal year and the components of
the fair value of total plan assets by type (i.e., equity securities, debt
securities, real estate and other assets). The Company adopted the provisions of
Statement No. 132 (revised), except for expected future benefit payments, which
must be disclosed for fiscal years ending after June 15, 2004.

On March 31, 2004, the FASB issued an exposure document entitled "Share-Based
Payment - an amendment of Statements No. 123 and 95 (Proposed Statement of
Financial Accounting Standards)." The Proposed Statement would eliminate the
ability to account for share-based compensation transactions using Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and generally would require that such transactions be accounted for
using a fair-value-based method. This accounting treatment, if approved, could
result in significant compensation expense for the Company. The Proposed
Statement currently contemplates its provisions being applied to public entities
prospectively for fiscal years beginning after December 15, 2004, as if all
share-based compensation awards granted, modified, or settled after December 15,
1994, had been accounted for using the fair-value method of accounting.
Retrospective application of the Proposed Statement is not permitted.

6. INTANGIBLE ASSETS

Intangible assets consist of the following:



June 30, 2004 December 31, 2003
--------------------------------------------------------------------------------------------
Accumulated Accumulated
Gross Value Amortization Net Value Gross Value Amortization Net Value
--------------------------------------------------------------------------------------------
(in thousands)

Goodwill $12,167 $ 1,864 $10,303 $12,167 $ 1,864 $10,303
--------- ------- ------- ------- ------- -------
Other Intangible Assets:
Patents 946 630 316 946 594 352
Covenant Not To Compete 110 110 - 110 110 -
Trademarks 922 338 584 922 319 603
Other 501 479 22 501 476 25
--------- ------- ------- ------- ------- -------
Total Other Intangible Assets 2,479 1,557 922 2,479 1,499 980
--------- ------- ------- ------- ------- -------
$14,646 $ 3,421 $11,225 $14,646 $ 3,363 $11,283
========= ======= ======= ======= ======= =======


The other intangible assets are all amortizable and have original estimated
useful lives as follows: patents are amortized over approximately 13 years and
trademarks over approximately 25 years. Amortization expense for intangible
assets for each of the three-month periods of fiscal 2004 and 2003 were $28,000;
and for the six-month periods of fiscal 2004 and 2003 were $58,000 and $56,000,
respectively. Amortization expense for intangible assets subject to amortization
in each of the next five fiscal years is estimated to be $116,000 per year.

8


7. DEBT

Debt consists of the following:



June 30, December 31,
2004 2003
----------------------------
(in thousands)

Revolving lines of credit $ - $ 327
Term loan A 1,795 1,992
Term loan B 499 583
------- -------
2,294 2,902

Less current portion (559) (887)
------- -------
Long-term debt $ 1,735 $ 2,015
======= =======


The Company's Senior Credit Facility bears interest ranging from the prime rate
plus fifty basis points to the prime rate plus 2%. The Senior Credit Facility is
secured by all of the Company's assets. The Senior Credit Facility also provides
for certain reserves for outstanding letters of credit and other contingencies,
which have reduced the Company's availability under the revolving loan portion
of the Senior Credit Facility. At June 30, 2004, the outstanding revolving loan
balance was $0 and the outstanding term loan balances were $1,795,000 and
$499,000, or a total of $2,294,000 and bore interest of 4.5%. Availability under
the Senior Credit Facility at June 30, 2004 was $13,205,000.

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



June 30
--------------
(in thousands)

2005 559
2006 1,735
2007 -
-------
2,294
Less current portion (559)
-------
Total long-term debt $ 1,735
=======


9


8. ACCRUED LIABILITIES AND OTHER

Accrued liabilities and other consists of the following:



June 30, December 31,
2004 2003
----------------------------------
(in thousands)

Taxes (other than income) and insurance $ 901 $1,062
Commissions 447 484
Accrued litigation and legal fees 1,511 1,109
Other professional fees 211 269
Environmental 1,019 957
Warranty 992 915
Other 1,428 1,206
Reclassified to long-term liabilities (600) (600)
------- ------
$ 5,909 $5,402
======= ======


The Company's warranty reserve, which is included in accrued liabilities and
other above, for the period ended June 30, 2004 is as follows:



June 30,
2004
--------------
(in thousands)

Liability, beginning of year $ 915
Expense for new warranties issued 246
Expense related to accrual revisions for prior year 20
Warranty claims (189)
------
Liability, end of period $ 992
------


9. COMMITMENTS AND CONTINGENCIES

LITIGATION

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

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

The Company's subsidiary SLW Holdings, Inc., formerly known as SL Waber, Inc.,
is the defendant in a cause of action brought in Superior Court of the State of
Illinois. This case was initiated by a former independent sales representative
of SL Waber, Inc. claiming wrongful termination. On August 9, 2004, the Company
reached an agreement with the plaintiff to settle all disputes in consideration
for $235,000 payable in cash.

10


Substantially all of the assets of SL Waber, Inc., including its corporate name
were sold by the Company in August 2001.

In 1997, the Company, through a wholly owned subsidiary, commenced a patent
infringement action against American Power Conversion Corporation ("APC") in the
United States District Court for the Southern District of New Jersey. The
complaint alleged that APC infringed a patent held by the subsidiary, and sought
damages resulting from APC's infringement. On February 3, 2004, the Company and
APC executed a Settlement Agreement that provided, among other things, for the
release of all claims against APC and the granting to APC a paid-up license, in
return for the payment to the Company of $4,000,000. The Settlement Agreement
was conditioned on the dismissal with prejudice of the lawsuit. On March 5,
2004, the District Court dismissed the lawsuit with prejudice and the settlement
fee was paid to the Company. A third party has threatened certain claims against
the Company relating to this matter for a portion of the payment. The Company
disputes such claims and intends to defend against them vigorously.

On June 12, 2002, the Company and its wholly owned subsidiary, SL Surface
Technologies, Inc. ("SurfTech"), were served with notice of a class action
complaint filed in Superior Court of New Jersey for Camden County.
(Substantially all of the operating assets of SurfTech were sold in November
2003). The Company and SurfTech are currently two of approximately 39 defendants
in this action. The complaint alleges, among other things, that the plaintiffs
suffered personal injuries as a result of consuming water distributed from the
Puchack Wellfield in Pennsauken, New Jersey (which supplied Camden, New Jersey).

This case arises from the same factual circumstances as current administrative
actions involving the Puchack Wellfield, to which the Company is a party. The
administrative actions are discussed 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, New Jersey (the "SurfTech Site").

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

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

11


ENVIRONMENTAL

Loss contingencies include potential obligations to investigate and eliminate or
mitigate the effects on the environment of the disposal or release of certain
chemical substances at various sites, such as Superfund sites and other
facilities, whether or not they are currently in operation. The Company is
currently participating in environmental assessments and cleanups at a number of
sites under these laws and may in the future be involved in additional
environmental assessments and cleanups. Based upon investigations completed by
the Company and its independent engineering-consulting firms to date, management
has provided an estimated accrual for all known costs believed to be probable in
the amount of $1,019,000. 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.
Substantially all of the Company's environmental costs relate to discontinued
operations and all such costs have been recorded in discontinued operations.

The Company is the subject of various other lawsuits and actions relating to
environmental issues, including an administrative action in connection with the
SurfTech Site, which could subject the Company to, among other things,
$9,266,000 in collective reimbursements (with other parties) to the New Jersey
Department of Environmental Protection (the "NJDEP"). Technical data generated
as part of remedial activities at the SurfTech site have not established offsite
migration of contaminants and there are other technical factors and defenses
available to the Company. Based on the foregoing, the Company has been advised
by its outside counsel that it has significant defenses against all or any part
of the claim and that any material impact is unlikely.

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

The Company is investigating soil and ground water contamination on SL-MTI's
property in Montevideo, Minnesota. The Company has submitted to the Minnesota
Department of Environmental Protection a plan to remediate the site, which is
currently under review. At this date, it is too early to estimate the costs of
remediation.

The Company filed claims with several of its insurers seeking reimbursement for
past and future environmental costs. In settlement of its claims, the Company
received aggregate cash payments of $2,800,000 prior to fiscal 2001 and
contingent 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. On May 14,
2004, the Company received $138,000 from one insurer as payment of part of its
contingent commitment, which is recorded in discontinued operations. As of June
30, 2004 and December

12


31, 2003, the remaining environmental accruals of $1,019,000 and $957,000,
respectively, have been included in "Accrued liabilities and other" (Note 8).

10. SEGMENT INFORMATION

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

At December 31, 2002, the Company was comprised of five operating business
units. On November 24, 2003, the Company sold the operating assets of SurfTech.
SurfTech is classified as discontinued for all periods presented. Of the
remaining business segments: Condor produces a wide range of standard and custom
power supply products that convert AC or DC power to direct electrical current
to be used in customers' end products. Power supplies closely regulate and
monitor power outputs, using patented filter and other technologies, resulting
in little or no electrical interference. Teal is a leader in the design and
manufacture of customized power conditioning and power distribution units. Teal
products are developed and manufactured for custom electrical subsystems for
original equipment manufacturers of semiconductor, medical imaging, graphics,
and telecommunications systems. SL-MTI is a technological leader in the design
and manufacture of intelligent, high power density precision motors. New motor
and motion controls are used in numerous applications, including aerospace,
medical, and industrial products. RFL designs and manufactures teleprotection
products/systems that are used to protect utility transmission lines and
apparatus by isolating faulty transmission lines from a transmission grid. RFL
also provides customer service and maintenance for all electric utility
equipment protection systems. The Other segment includes corporate related
items, financing activities and other costs not allocated to other reportable
segments, which include but are not limited to certain legal, litigation and
public reporting charges.

The unaudited comparative results for the three-month and six-month periods in
fiscal 2004 and 2003 are as follows:



Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
---------------------------------------------------------
(in thousands)

NET SALES
Power Electronics Group:
Condor $ 11,660 $ 10,587 $ 19,523 $ 20,077
Teal 7,408 5,074 14,801 9,388
-------- -------- -------- --------
Total 19,068 15,661 34,324 29,465
-------- -------- -------- --------
SL-MTI 5,886 5,732 11,783 11,129
RFL 5,554 5,534 11,043 12,043
-------- -------- -------- --------
Consolidated $ 30,508 $ 26,927 $ 57,150 $ 52,637
======== ======== ======== ========


13




Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
-------------------------------------------------------------
(in thousands)

INCOME FROM OPERATIONS
Power Electronics Group:
Condor $ 1,524 $ 1,241 $ 1,400 $ 1,805
Teal 1,094 545 2,428 900
------- ------- ------- -------
Total 2,618 1,786 3,828 2,705
------- ------- ------- -------
SL-MTI 619 507 1,259 806
RFL 412 525 836 1,150
Other (1,361) (929) (2,440) (1,717)
------- ------- ------- -------
Consolidated $ 2,288 $ 1,889 $ 3,483 $ 2,944
======= ======= ======= =======




June 30, December 31,
2004 2003
---------------------------
(in thousands)

TOTAL ASSETS
Power Electronics Group:
Condor $15,504 $11,439
Teal 12,809 9,665
------- -------
Total 28,313 21,104
------- -------
SL-MTI 9,712 9,255
RFL 16,828 16,512
Other 10,149 11,550
------- -------
Consolidated $65,002 $58,421
======= =======




June 30, December 31,
2004 2003
--------------------------
(in thousands)

INTANGIBLE ASSETS (NET)
Teal $ 5,954 $ 6,009
SL-MTI 22 25
RFL 5,249 5,249
------- -------
Consolidated $11,225 $11,283
======= =======


11. DISCONTINUED OPERATIONS

SL WABER

Effective August 27, 2001, substantially all of the assets of SL Waber, Inc.
("SL Waber") and the stock of Waber de Mexico S.A. de C.V. were sold for
approximately $1,053,000. As part of this transaction, the purchaser acquired
the rights to the SL Waber name and assumed certain liabilities and obligations
of SL Waber. Subsequent to the sale, the Company changed the name of SL Waber to
SLW Holdings, Inc. ("SLW Holdings"). The net income or losses of this subsidiary
are included in the consolidated statements of operations under discontinued
operations for all periods presented. There was no activity from operations of
SLW Holdings during the fourth quarter of 2001 and thereafter. In 1997, SL Waber
commenced patent infringement litigation against APC, the rights to which were
retained by SL Waber after the

14

sale. On February 3, 2004, the Company and APC executed a Settlement Agreement
that provided, among other things, for a release of all claims against APC and
granted to APC a paid-up license, in return for the payment to the Company of
$4,000,000. The Settlement Agreement was conditioned on the dismissal with
prejudice of the lawsuit. On March 5, 2004, the settlement fee was paid to the
Company. The settlement fee, net of tax, in the amount of $2,488,000 is recorded
as part of discontinued operations in the Company's consolidated statements of
operations and cash flows for the six months ended June 30, 2004.

ELEKTRO-METALL EXPORT GMBH

On January 6, 2003, the Company sold its wholly-owned, indirect German
subsidiary, Elektro-Metall Export GmbH ("EME"). In consideration for 100% of the
issued and outstanding capital stock of EME, the purchaser paid $8,000,000,
consisting of cash of $4,000,000 paid at closing and $4,000,000 of purchaser
notes. In addition, EME made a distribution of $2,000,000 to the Company prior
to closing. The purchaser notes were comprised of a $3,000,000 secured note that
bore interest at the prime rate plus 2%, which was received on March 14, 2003,
and a $1,000,000 unsecured note that bore interest at an annual rate of 12%,
which was received on April 2, 2004. All cash proceeds relating to the purchase
price for the sale of EME have now been received by the Company.

SL SURFACE TECHNOLOGIES, INC.

On November 24, 2003, the Company sold the operating assets of SurfTech. The
sale included current assets and equipment used by SurfTech. The purchaser paid
$600,000 in cash, plus the assumption of certain liabilities. The Company
continues to own the land and building on which SurfTech's operations were
conducted, and has entered into a ten-year lease with the buyer. As a result of
the sale, the Company recorded an after tax loss of $442,000 in the fourth
quarter of 2003, which included severance, closing costs and liabilities
associated with the withdrawal from a multi-employer union pension plan. The
Company paid most of the severance and all closing costs related to the sale in
the fourth quarter of 2003, but continues to make payments related to its
withdrawal liability from the pension plan in which SurfTech was a participant.
There has not been any operational activity related to SurfTech since the sale
in November 2003. During the three and six month periods ended June 30, 2003,
SurfTech had sales of $517,000 and $1,025,000, respectively, and a net loss
before income taxes of $126,000 and $323,000, respectively, which has been
reclassified as discontinued operations.

12. RETIREMENT PLANS AND DEFERRED COMPENSATION

The Company maintains three defined contribution pension plans covering
substantially all employees. The Company's contributions to these plans are
based on a percentage of employee elective contributions and, in one plan, plan
year gross wages, as defined. Contributions to plans maintained by Teal and RFL
are based on a percentage of employee elective contributions. RFL has also made
a profit sharing contribution annually. Costs incurred under these plans
amounted to $517,000 and $622,000 during the six months ended June 30, 2004 and
2003, respectively.

The Company has agreements with certain active and retired directors, officers
and key employees providing for supplemental retirement benefits. The liability
for supplemental retirement benefits is based on the most recent mortality
tables available at discount rates ranging from 6% to 12%. The amount charged to
income in connection with these agreements amounted to $225,000 and $156,000 for
the six months ended June 30, 2004 and 2003, respectively.

15


13. RELATED PARTY TRANSACTIONS

During the period January 1, 2004 to June 9, 2004, the Company was billed
$81,000 in legal fees for services performed by Olshan Grundman Frome Rosenzweig
& Wolosky LLP ("Olshan"), a law firm in which a former director of the Company
is a senior partner. This director did not stand for reelection at the Company's
Annual Meeting of Shareholders held on June 9, 2004 and therefore is no longer
considered a related party. As of June 9, 2004, $33,000 remains payable for 2004
services. The fees relate to general corporate and securities matters. During
the comparable period in 2003, the Company was billed $297,000 in legal fees for
services performed by Olshan.

The compensation committee has approved the payment of certain fees from the
Company to Steel Partners, Ltd. ("SPL"), a company controlled by the Chairman of
the Board and Chief Executive Officer of the Company, Warren Lichtenstein. These
fees are in consideration for the services of Mr. Lichtenstein and the Company's
President, Glen Kassan, as well as other assistance provided by SPL from time to
time. During the six months ended June 30, 2004, the Company has expensed
$237,000 for SPL services, of which $40,000 remains payable. The Company
expensed $237,000 for services performed for the six months ended June 30, 2003.

RFL has an investment of $15,000 in RFL Communications PLC ("RFL
Communications"), representing 4.5% of the outstanding equity thereof. RFL
Communications is a distributor of teleprotection and communication equipment
located in the United Kingdom. It is authorized to sell RFL products in
accordance with an international sales agreement. Sales to RFL Communications
for the six months ended June 30, 2004 and June 30, 2003 were $824,000 and
$403,000, respectively. Accounts receivable due from RFL Communications at June
30, 2004 was $119,000.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Company through its subsidiaries, designs, manufactures and markets power
electronics, power motion, power protection equipment, teleprotection and
specialized communication equipment that is used in a variety of aerospace,
computer, datacom, industrial, medical, telecom, transportation and utility
equipment applications. The Company is comprised of four domestic business
segments, two of which have significant manufacturing operations in Mexico. Most
of the Company's sales are made to customers who are based in the United States.
However, the Company has over the years increased its presence in international
markets. The Company places an emphasis on high quality, well-built, dependable
products and continues its dedication to product enhancement and innovations.

CRITICAL ACCOUNTING POLICIES

The Company's Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States. These
generally accepted accounting principles require 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 Consolidated
Financial Statements and the reported amounts of net sales and expenses during
the reporting period.

The Company's significant accounting policies are described in Note 1 in the
Notes to Consolidated Financial Statements included in Part IV of the Company's
Annual Report on

16


Form 10-K. Not all of these significant accounting policies require management
to make difficult, subjective or complex judgments or estimates. However, the
following policies could be deemed to be critical, as that term is defined by
the Securities and Exchange Commission.

REVENUE RECOGNITION

Revenue from product sales is recognized at the time the product is shipped,
with provisions established for estimated product returns and returns related to
one business segment's stock scrap program with distributors. Upon shipment, the
Company provides for the estimated cost that may be incurred for product
warranties. Rebates and other sales incentives offered by the Company are
recorded as a reduction of sales at the time of shipment. Revenue recognition is
significant because net sales is a key component of results of operations. In
addition, revenue recognition determines the timing of certain expenses, such as
commissions and royalties. The Company follows generally accepted guidelines in
measuring revenue. 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 the allowance for doubtful accounts related to trade
receivables is based on two methods. The amounts calculated from each of these
methods are combined to determine the total amount reserved. First, the Company
evaluates specific accounts where it has information that the customer may have
an inability to meet its financial obligations (bankruptcy, etc.). In these
cases, the Company uses its judgment, based on the best available facts and
circumstances, and records a specific reserve for that customer against amounts
due to reduce the receivable to the amount that is expected to be collected.
These specific reserves are reevaluated and adjusted as additional information
is received that impacts the amount reserved. Second, a general reserve is
established for all customers based on several factors, including historical
write-offs as a percentage of sales. If circumstances change (i.e., higher than
expected defaults or an unexpected material adverse change in a major customer's
ability to meet its financial obligation), the Company's estimates of the
recoverability of amounts due could be reduced by a material amount.

INVENTORIES

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

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

17


ACCOUNTING FOR INCOME TAXES

The Company's income tax policy records the estimated future tax effects of
temporary differences between the tax basis of assets and liabilities and
amounts reported in the accompanying consolidated balance sheets, as well as
operating loss and tax credit carryforwards. The Company follows 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 it establishes a valuation allowance or
increases or decreases this allowance in a period, it must include expense or
income, as the case may be, within the tax provision in the consolidated
statement of operations.

Significant management judgment is required in determining the provision for
income taxes, the deferred tax assets and liabilities and any valuation
allowance recorded against deferred tax assets. As of June 30, 2004 and December
31, 2003, the Company had recorded total valuation allowances of $352,000 for
both periods due to uncertainties related to the utilization of some deferred
tax assets, primarily consisting of certain loss carryforwards and tax credits
before they expire. The valuation allowance is based on estimates of taxable
income by jurisdiction in which the Company operates and the period over which
deferred tax assets will be recoverable. In the event that actual results differ
from these estimates or these estimates are adjusted in future periods, the
Company may need to establish an additional valuation allowance that could
materially impact its consolidated financial position and results of operations.

The net deferred tax assets as of June 30, 2004 and December 31, 2003 were
$5,533,000 and $6,255,000, respectively, net of valuation allowances of $352,000
for both periods. 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 recoverability of the deferred tax assets and assesses
the need for additional valuation allowances quarterly.

LEGAL CONTINGENCIES

The Company is currently involved in certain legal proceedings. As discussed in
Note 9 in the Notes to the Consolidated Financial Statements included in Part I
to this Quarterly Report on Form 10-Q, the Company has accrued an estimate of
the probable costs for the resolution of these claims. This estimate has been
developed after investigation and is based upon an analysis of potential
results, assuming a combination of litigation and settlement strategies.
Management does not believe these proceedings will have a material adverse
effect on the Company's consolidated financial position. It is possible,
however, that future results of operations for any particular quarterly or
annual period could be materially affected by changes in these assumptions, or
the effectiveness of these strategies, related to these proceedings.

18


IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS

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

ENVIRONMENTAL EXPENDITURES

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

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

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

19


LIQUIDITY AND CAPITAL RESOURCES



June 30, 2004 December 31, 2003 $ Variance % Variance
------------- ----------------- ---------- ----------
(in thousands)

Cash and cash equivalents $ 4,252 $ 3,501 $ 751 21%
Bank debt $ 2,294 $ 2,902 ($ 608) 21%
Working capital $20,821 $16,612 $4,209 25%
Shareholders' equity $38,650 $34,581 $4,069 12%



At June 30, 2004, the Company maintained a cash balance of $4,252,000, with
outstanding bank debt of $2,294,000. Availability under the Senior Credit
Facility was $13,205,000. During the six months ended June 30, 2004, the net
cash used by operating activities was $113,000, as compared to net cash provided
by operating activities of $396,000 during the six months ended June 30, 2003.
The primary uses of cash from operating activities for the six-month period
ended June 30, 2004 were increases in accounts receivable and in inventory.
These uses of cash were partially offset by net income from continuing
operations and an increase in accrued income taxes payable and accounts payable.
In the six-month period of 2003, net cash provided by operating activities was
$396,000. The principal sources of cash were income from continuing operations,
decreases in accounts receivable and inventory. These sources of cash were
partially offset by reductions in accounts payable, other accrued liabilities
and accrued income taxes.

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

During the six months ended June 30, 2004, net cash provided by investing
activities was $299,000, primarily generated by the proceeds of $1,000,000
received by the Company as a final cash payment from the sale of EME. These
proceeds were partially offset by $701,000 in capital expenditures primarily for
computers, machinery and equipment. During the six months ended June 30, 2003,
net cash provided by investing activities was $6,437,000, which was primarily
generated by the original proceeds of $7,000,000 from the sale of EME.

During the six months ended June 30, 2004, net cash used in financing activities
was $1,409,000 primarily due to the payment of the fixed portion of debt and the
overadvance under the Senior Credit Facility. Also during the period the Company
purchased treasury stock in the amount of approximately $821,000 for 83,450
shares at an average price of $9.84 per share under the Company's repurchase
program approved by the Board of Directors on December 12, 2003. During the six
months ended June 30, 2003, net cash used in financing activities was
$11,497,000, primarily related to the pay down of the Company's former credit

20


facility in the net amount of $17,557,000, offset by net borrowing of $6,824,000
under the Senior Credit Facility.

The Company's current ratio was 2.04 to 1 at June 30, 2004 and 1.98 to 1 at
December 31, 2003. The increase in the current ratio at June 30, 2004 is due to
increases in cash, receivables and inventory from year-end levels, partially
offset by an increase in accounts payable.

As a percentage of total capitalization, consisting of debt and shareholders'
equity, total borrowings by the Company were 6% at June 30, 2004 and 8% at
December 31, 2003. During the first six months of 2004, total debt decreased by
$608,000.

Capital expenditures of $701,000 were made during the first six months of 2004.
These expenditures primarily related to computer equipment, factory machinery
and equipment purchases. Capital expenditures for the period represent a
$138,000 increase from the comparable period in 2003. During the remainder of
2004, the Company anticipates incurring additional capital expenditures of
approximately $600,000. 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.

During the first six months of 2004, the Company was able to generate adequate
amounts of cash to meet its operating needs, reduce total borrowings by $608,000
and purchase treasury stock in the amount of approximately $821,000 under the
Company's stock repurchase program. During the period, the operating segments
had an aggregate negative cash flow of $503,000, compared to a positive cash
flow of $3,474,000 in the same period of 2003. Condor and Teal, which had
increases in accounts receivable and inventory at the end of the second quarter
2004, generated negative cash flow during the 2004 period. Both of these
business segments had increased sales in the second quarter of 10% and 46%,
respectively, and increases in backlog for the period of 19% and 45%,
respectively. All operating business segments are expected to have positive cash
flow for the year ending December 31, 2004.

CONTRACTUAL OBLIGATIONS

The following is a summary of the Company's contractual obligations that existed
as of June 30, 2004:



Less Than 1 to 3 4 to 5 After 5
1 Year Years Years Years Total
--------------------------------------------------------------------
(in thousands)

Operating Leases $ 795 $1,400 $ - $ - $2,195

Debt 559 1,735 - - 2,294

Capital Leases 46 122 - - 168
--------- ------ ------ ------- ------
$ 1,400 $3,257 $ - $ - $4,657
========= ====== ====== ======= ======


OFF-BALANCE SHEET ARRANGEMENTS

It is not the Company's usual business practice to enter into off-balance sheet
arrangements, such as guarantees on loans and financial commitments,
indemnification arrangements, and retained

21


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

Assuming no further significant slowdown of economic activity in the Company's
served markets, management believes that cash from operations and funds expected
to be available under the Senior Credit Facility will be sufficient to fund the
Company's operations and working capital requirements.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2004, COMPARED WITH THREE MONTHS ENDED JUNE 30, 2003

The table below shows the comparison of net sales for the quarter ended June 30,
2004 and the quarter ended June 30, 2003:



Three Months Three Months Increase/ Increase/
Ended Ended (Decrease) Over (Decrease) Over
June 30, June 30, Same Quarter Same Quarter
2004 2003 Last Year Last Year
---------------------------------------------------------------------
Amount Amount Amount Percent
---------------------------------------------------------------------
(in thousands)

Power Electronics Group:
Condor $ 11,660 $ 10,587 $ 1,073 10%
Teal 7,408 5,074 2,334 46%
------------ ------------ -------- ----
Total 19,068 15,661 3,407 22%
------------ ------------ -------- ----
SL-MTI 5,886 5,732 154 3%
RFL 5,554 5,534 20 N/M
------------ ------------ -------- ----
Total $ 30,508 $ 26,927 $ 3,581 13%
------------ ------------ -------- ----


The table below shows the comparison of income from operations for the quarter
ended June 30, 2004 and the quarter ended June 30, 2003:



Three Months Three Months Increase/ Increase/
Ended Ended (Decrease) Over (Decrease) Over
June 30, June 30, Same Quarter Same Quarter
2004 2003 Last Year Last Year
---------------------------------------------------------------------
Amount Amount Amount Percent
---------------------------------------------------------------------
(in thousands)

Power Electronics Group:
Condor $ 1,524 $ 1,241 $ 283 23%
Teal 1,094 545 549 101%
------------ ------------ -------- -----
Total 2,618 1,786 832 47%
------------ ------------ -------- -----
SL-MTI 619 507 112 22%
RFL 412 525 (113) (22%)
Other (1,361) (929) (432) (47%)
------------ ------------ --------- -----
Total $ 2,288 $ 1,889 $ 399 21%
------------ ------------ --------- -----


22

Consolidated net sales for the three-month period ended June 30, 2004 increased
by $3,581,000, or 13%, compared to the same quarter in 2003. Teal experienced a
significant sales increase from 2003 of $2,334,000, or 46%. Condor also recorded
increased sales over 2003 of $1,073,000, or 10%. SL-MTI and RFL recorded modest
sales increases in 2004, compared to 2003.

The Company had income from operations of $2,288,000 for the three-month period
ended June 30, 2004, as compared to income from operations of $1,889,000 for the
corresponding period last year, an increase of $399,000, or 21%.

Net income from continuing operations was $1,559,000, or $0.26 per diluted
share, compared to $1,127,000, or $0.19 per diluted share in 2003. Net income
from continuing operations increased $432,000, or 38%. The Company's business
segments and the components of operating expenses are discussed more fully in
the following sections.

The Power Electronics Group, which is comprised of Condor and Teal, recorded a
sales increase of $3,407,000, or 22%, and an increase in income from operations
of $832,000, or 47%. Teal experienced a sales increase of $2,334,000, or 46%,
and an increase in income from operations of $549,000, or 101%. Condor also
experienced an increase in sales of $1,073,000, or 10%, and an increase in
income from operations of $283,000, or 23%. Teal's sales increase was primarily
attributable to significant increases in its medical imaging product line and,
to a lesser extent, its semiconductor product line. Teal's increase in income
from operations is due to its increase in sales volume. Condor's increase in
sales for the quarter is primarily attributable to an increase in sales in its
medical and industrial product lines, while sales decreased for its
telecommunications product line. Condor's increase in income from operations is
primarily due to its increase in sales volume in 2004 as compared to 2003.

SL-MTI's sales increased $154,000, or 3%, while income from operations increased
$112,000, or 22%. The increase in income from operations is due to an increase
in sales and a combination of improved efficiency experienced at its
manufacturing facility in Cedro, Mexico, as compared to 2003. These
manufacturing efficiencies contributed to improved gross margins in 2004
compared to 2003.

RFL's sales increased $20,000 during the second quarter of 2004, compared to
2003; while income from operations decreased by $113,000, or 22%, for the
comparable periods. While RFL has taken steps to contain its cost structure to
be in line with its current sales forecast, it has significantly increased its
engineering and product development costs. This increase is the principal reason
for the reduction in income from operations in 2004 from 2003.

COST OF PRODUCTS SOLD

As a percentage of net sales, cost of products sold in 2004 was approximately
63%, compared to 62% in 2003. Although the cost of products sold as a percentage
of net sales remained relatively constant for the comparative quarters, the mix
within the Company's business segments changed over the two periods. The cost of
products sold percentage for the Power Electronics Group remained at
approximately 63% for 2004, compared to 2003. Within the Power Electronics
Group, Condor's cost of products sold remained constant. Teal's cost of products
sold increased approximately 2%, due to an increase in materials costs and an
increase in direct labor expenses. Direct labor expenses increased to support
the rapid ramp-up in production, as necessary to meet precipitous sales growth.
SL-MTI decreased its cost of products sold percentage from 72% in

23


2003, to 69% in 2004. These improved gross margins were due to an increase in
sales volume and improved operating efficiencies at its manufacturing facility
in Cedro, Mexico. RFL's cost of products sold as a percentage of sales remained
relatively constant in 2004, compared to 2003.

ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES

Engineering and product development expenses for the three month periods ended
June 30, 2004 and June 30, 2003 were approximately 8% of net sales. The increase
in engineering and product development expenses was $306,000, or 15% in the
current quarter of 2004, as compared to 2003. With the exception of Teal, all of
the Company's business segments increased their engineering and product
development expenditures in 2004, compared to 2003. Teal's engineering and
product development expenditures decreased marginally. SL-MTI and RFL are
working on new products and product enhancements at a greater rate in 2004,
compared to 2003.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for 2004 and 2003 were 21% and 22%
of sales, respectively. These expenses increased by $348,000, or 6%, largely as
the result of a 13% sales increase over the periods. The most significant
increases in selling, general and administrative costs were experienced by
Condor and Teal, due primarily to corresponding increases in sales volume. The
Company also recorded $184,000 in compensation expense related to certain stock
based compensation arrangements with key executives.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expenses for the 2004 and 2003 remained relatively
constant at 2% of sales.

AMORTIZATION OF DEFERRED FINANCING COSTS

In connection with entering into the Senior Credit Facility on January 6, 2003,
the Company incurred costs of approximately $1,342,000. These costs have been
deferred and are being amortized over the three-year term of the Senior Credit
Facility. For the quarters ended June 30, 2004 and June 30, 2003, amortization
of these deferred financing assets was $112,000 and $101,000, respectively.

INTEREST INCOME (EXPENSE)

Interest income decreased for the current three-month period by $13,000, as
compared to the same period last year. Interest expense for the current
three-month period decreased by $37,000, or 39%, due primarily to the reduction
of debt.

TAXES

The effective tax rate for the three-month period ended June 30, 2004 was
approximately 27%. This rate reflects the statutory rate after adjustments for
state tax provisions, offset by research and development credits and certain
foreign tax credits recorded during the period. The effective tax rate for the
comparable period in 2003 was approximately 35%.

DISCONTINUED OPERATIONS

For the three months ended June 30, 2004, the Company recorded net income from
discontinued operations, net of tax, of $20,000. This amount, net of tax, is
primarily attributable to a favorable tax ruling related to EME, in the amount
$330,000 net of expenses and net billings to insurance companies related to the
recovery of certain legal fees for environmental matters in the amount of
$172,000, net of tax. These income amounts, net of tax, were offset by current
environmental,

24


legal and litigation charges related to discontinued operations. For the three
months ended June 30, 2003, the Company recorded a net loss from discontinued
operations, net of tax, of $428,000. This amount consisted primarily of the net
loss for SurfTech, net of tax, in the amount of $131,000 and the cost of
environmental and legal charges related to discontinued operations.

SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003

The table below shows the comparison of net sales for the six months ended June
30, 2004 and June 30, 2003:



Six Months Six Months Increase/ Increase/
Ended Ended (Decrease) Over (Decrease) Over
June 30, June 30, Same Period Same Period
2004 2003 Last Year Last Year
---------------------------------------------------------------------
Amount Amount Amount Percent
---------------------------------------------------------------------
(in thousands)

Power Electronics Group:
Condor $19,523 $20,077 ($ 554) (3%)
Teal 14,801 9,388 5,413 58%
---------- ------- ------- ----
Total 34,324 29,465 4,859 16%
---------- ------- ------- ----
SL-MTI 11,783 11,129 654 6%
RFL 11,043 12,043 (1,000) (8%)
---------- ------- ------- ----
Total $57,150 $52,637 $ 4,513 9%
---------- ------- ------- ----


The table below shows the comparison of income from operations for the six
months ended June 30, 2004 and June 30, 2003:



Six Months Six Months Increase/ Increase/
Ended Ended (Decrease) Over (Decrease) Over
June 30, June 30, Same Period Same Period
2004 2003 Last Year Last Year
---------------------------------------------------------------------
Amount Amount Amount Percent
---------------------------------------------------------------------
(in thousands)

Power Electronics Group:
Condor $ 1,400 $ 1,805 ($ 405) (22%)
Teal 2,428 900 1,528 170%
---------- ------- ------- -----
Total 3,828 2,705 1,123 42%
---------- ------- ------- -----
SL-MTI 1,259 806 453 56%
RFL 836 1,150 (314) (27%)
Other (2,440) (1,717) (723) (42%)
---------- ------- ------- -----
Total $ 3,483 $ 2,944 $ 539 18%
---------- ------- ------- -----


Consolidated net sales for the six months ended June 30, 2004, compared to the
six months ended June 30, 2003 increased $4,513,000, or 9%. This increase was
due mainly to an increase in sales in the Power Electronics Group of $4,859,000,
or 16%. Within the Power Electronics Group, Teal had a significant increase in
sales of $5,413,000, or 58%, while Condor's sales decreased $554,000, or 3%.
Condor's sales decrease was primarily due to

25


delayed shipments from its contract manufacturers in China in the first quarter.
SL-MTI had a sales increase of $654,000, or 6%; and RFL experienced a sales
decrease of $1,000,000, or 8%. The sales decrease at RFL was caused by sluggish
demand in its served markets.

The Company recorded income from operations of $3,483,000 for the six months
ended June 30, 2004, compared to income from operations of $2,944,000 for the
corresponding period last year. This change represents an increase of $539,000,
or 18%.

Net income from continuing operations was $2,244,000, or $0.37 per diluted share
in 2004, compared to $1,598,000, or $0.27 per diluted share in 2003. Net income
from continuing operations increased by $646,000, or 40%. The Company's business
segments and the components of operating expenses are discussed more fully in
the following sections:

The Power Electronics Group recorded a sales increase of $4,859,000, or 16%, and
an increase in income from operations of $1,123,000, or 42%. Within the Power
Electronics Group, Teal reported a sales increase of $5,413,000, or 58%, and
Condor recorded a sales decrease of $554,000, or 3%. Teal's income from
operations increased by $1,528,000, or 170%, compared to 2003. Teal's increased
income from operations was due to increased sales volume, which was partially
offset by higher related selling and administrative costs. Its medical imaging
product line and its semiconductor product line each experienced increased
demand throughout the period. Condor experienced a sales decrease of $554,000
and a decrease in income from operations of $405,000, primarily due to delays in
shipments from contract manufacturers in China.

SL-MTI's sales increased by $654,000, or 6%, while income from operations
increased by $453,000, or 56%. The increase in sales was primarily due to
increased demand for its medical product line in the first quarter of 2004. The
increase in income from operations was the result of increased sales volume and
operating efficiencies at SL-MTI's manufacturing facility in Cedro, Mexico.
These increases were partially offset by increased engineering and product
development spending.

RFL's sales decreased by $1,000,000, or 8%, in 2004, compared to 2003. Income
from operations decreased by $314,000, or 27%, for the comparable periods. All
of RFL's product lines experienced decreases in sales. RFL continues to
experience inconsistent procurement patterns from electric utility companies,
who are the major purchasers of its products. Larger infrastructure expansion
projects continue to be deferred in favor of smaller maintenance projects. The
Company believes that this pattern will continue until investment incentives are
created by the enactment of pending federal energy legislation. RFL has
maintained its gross margins, compared to 2003, due to cost containment. Despite
lower sales volume, RFL increased its expenditures for engineering and product
development by approximately 19%, compared to 2003.

COST OF PRODUCTS SOLD

Cost of products sold as a percentage of sales for the six months ended June 30,
2004 and June 30, 2003 was approximately 63%. With the exception of SL-MTI, all
of the business segments' cost of products sold as a percentage of sales were
comparable to 2003. Gross margins at SL-MTI improved by approximately 4%, due to
increased volume and improved manufacturing efficiencies, as previously
discussed.

26


ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES

Engineering and product development expenses for the six months ended June 30,
2004 and June 30, 2003 remained at approximately 8% of sales. Engineering and
product development expenses increased $559,000, or 14%, in the six-month period
of 2004, as compared to 2003. All of the Company's business segments increased
their engineering and product development expenditures in 2004, compared to
2003.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the six months ended June 30,
2004 were approximately 21% of sales, compared to 22% of sales in 2003. These
expenses increased by $512,000, or 4%, over the comparative periods. The major
reason for the increase was due to the greater sales volume. Another
contributing factor to the increase was the recording of $428,000 in
compensation expense related to certain stock based compensation arrangements
with key executives, which were non-cash charges for the period.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expenses for 2004 and 2003 were approximately 2%
of sales, and remained relatively constant in 2004, as compared to 2003.

AMORTIZATION OF DEFERRED FINANCING COSTS

Amortization of deferred financing costs was $224,000 in 2004 and $201,000 in
2003. These costs were less than 1% of sales in 2004 and 2003.

INTEREST INCOME (EXPENSE)

Interest income for the six months ended June 30, 2004 decreased by $35,000, as
compared to the same period last year. This decrease is primarily related to the
pay down of the purchaser's note, received as part of the sale of EME. Interest
expense for the same six-month period decreased by $120,000, or 45%, due
primarily to the reduced debt levels.

TAXES

The effective tax rate for the six months ended June 30, 2004 was approximately
29%, compared to 38% for the six months ended June 30, 2003. The effective tax
rate for the six months ended June 30, 2004 reflects the statutory rate after
adjustments for state tax provisions, offset by research and development credits
and certain foreign tax credits primarily taken in the first quarter of 2004.

DISCONTINUED OPERATIONS

For the six months ended June 30, 2004, the Company recorded net income from
discontinued operations, net of tax, of $2,476,000. This amount is primarily
related to a settlement fee received by SL Waber, net of tax, in the amount of
$2,488,000 (see Note 11) and the reversal of tax reserves related to EME as
previously discussed. These income amounts, net of tax, were partially offset by
current environmental, legal and litigation charges related to discontinued
operations. For the six months ended June 30, 2003, the Company recorded a net
loss from discontinued operations, net of tax, of $713,000. This amount
consisted primarily of the net loss for SurfTech, net of tax, in the amount of
$274,000 and the cost of environmental and legal charges related to discontinued
operations.

27


FORWARD-LOOKING INFORMATION

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

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

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

Future factors include the effectiveness of cost reduction actions undertaken by
the Company; increasing price, products and services competition by U.S. and
non-U.S. competitors, including new entrants; rapid technological developments
and changes and the Company's ability to continue to introduce and develop
competitive new products and services on a timely, cost-effective basis;
availability of manufacturing capacity, components and materials; credit
concerns and the potential for deterioration of the credit quality of customers;
customer demand for the Company's products and services; ability of the Company
to continue to finance its operations on satisfactory terms; U.S. and non-U.S.
governmental and public policy changes that may affect the level of new
investments and purchases made by customers; changes in environmental and other
U.S. and non-U.S. governmental regulations; protection and validity of patent
and other intellectual property rights; compliance with the covenants and
restrictions of bank credit facilities; and outcome of pending and future
litigation and governmental proceedings. These are representative of the future
factors that could affect the outcome of the forward-looking statements. In
addition, such statements could be affected by general industry and market
conditions and growth rates, general U.S. and non-U.S. economic conditions,
including increased economic uncertainty and instability, and interest rate and
currency exchange rate fluctuations and other future factors.

28


For a further description of future factors that could cause actual results to
differ materially from such forward-looking statements, see the discussion in
the Company's Annual Report on Form 10-K for the year ended December 31, 2003,
Part I, Item 1 - Risk Factors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in quantitative and qualitative market risk
from the disclosure contained in Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 2003, which is incorporated herein by
reference.

ITEM 4. CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the design and operation of the
Company's "disclosure controls and procedures," as such term is defined in Rules
13a-15e and 15d-15e promulgated under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") as of this Quarterly Report on Form 10-Q (this
"Report"). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this Report to
provide reasonable assurance that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. There have been no
changes in internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 9 to the Consolidated Financial Statements.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES

On December 12, 2003, the Company announced that its Board of Directors had
authorized the repurchase of up to 10% of the outstanding shares of common stock
of the Company. Any repurchases are to be made on the open market or in
negotiated transactions. For the six months ended June 30, 2004, the Company had
purchased 83,450 shares pursuant to the December 12, 2003 repurchase program and
44,100 shares purchased through deferred compensation plans.

ISSUER PURCHASES OF EQUITY SECURITIES



TOTAL NUMBER
OF SHARES PURCHASED AS
TOTAL PART MAXIMUM NUMBER
NUMBER OF AVERAGE OF PUBLICLY OF SHARES THAT MAY YET
SHARES PRICE PAID ANNOUNCED PLANS BE PURCHASED UNDER THE
PERIOD PURCHASED PER SHARE OR PROGRAMS PLANS OR PROGRAMS
------ --------- --------- ----------- -----------------------

January 1 - 31, 2004 20,600(1) $9.13 - 593,924
February 1 - 29, 2004 4,300(1) $9.41 - 593,924
March 1 - 31, 2004 4,200(1) $9.67 - 593,924
April 1 - 30, 2004 80,250(2) $9.87 71,650 522,274
May 1 - 31, 2004 16,500(3) $9.88 11,800 510,474
June 1 - 30, 2004 1,700(1) $10.55 - 510,474
Total 127,550(4) $9.74(5) 83,450


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

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

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

4. Of the aggregate 127,550 shares purchased, an aggregate of 44,100 shares were
purchased through deferred compensation plans.

5. The average price per share for purchases made through a publicly announced
plan or program was $9.84 per share for the 83,450 shares purchased.


29


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

At the Company's Annual Meeting of Shareholders on June 9, 2004, the Company's
shareholders re-elected seven incumbent members (J. Dwane Baumgardner, Avrum
Gray, James R. Henderson, Glen M. Kassan, Warren G. Lichtenstein, James A.
Risher, and Mark E. Schwarz) to the Company's Board of Directors. The votes cast
for all nominees were as follows:



NOMINEES FOR WITHHOLD AUTHORITY
- ----------------------- --------- ------------------

J. Dwane Baumgardner 5,556,887 92,796
Avrum Gray 5,510,384 139,299
James R. Henderson 5,584,481 65,202
Glen M. Kassan 5,585,694 63,989
Warren G. Lichtenstein 5,586,662 63,021
James A. Risher 5,586,897 62,786
Mark E. Schwarz 5,449,554 200,129


The votes cast for, against, and withheld for the ratification of the
appointment of Grant Thornton LLP as the Company's independent auditors for the
fiscal year ending December 31, 2004 were as follows:



FOR AGAINST ABSTAIN
--- ------- -------

5,572,058 65,316 12,309


ITEM 5. OTHER INFORMATION

Pursuant to Section 10A(i)(2) of the Exchange Act, the Company is responsible
for listing the non-audit services approved in the second quarter of 2004 by its
Audit Committee to be performed by Grant Thornton, the Company's external
auditor. Each of the permitted non-audit services has been pre-approved by the
Audit Committee or the Audit Committee's Chairman pursuant to delegated
authority by the Audit Committee. During the second quarter of 2004, the Audit
Committee pre-approved the following non-audit services anticipated to be
performed by Grant Thornton: 1) Review of Forms 1118 and 5471 to be included in
the Company's 2003 U.S. Corporation Income Tax Return; and 2) Analysis and
consultation in connection with allowable research and development tax credits.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

30


32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K
None.

31


SIGNATURES

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

Date: August 9, 2004 SL INDUSTRIES, INC.
--------------------------------------
(Registrant)
By: /s/ Warren G. Lichtenstein
--------------------------------------
Warren G. Lichtenstein
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)

By: /s/ David R. Nuzzo
--------------------------------------
David R. Nuzzo
Chief Financial Officer
(Principal Accounting Officer)

32