FORWARD LOOKING STATEMENTS

Statements in this discussion and analysis about the Company's anticipated financial results and growth, as well as those about the development of its products and markets, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These include the risks discussed in Item 1A to this Annual Report, entitled 'Risk Factors', and others discussed in this report.

CRITICAL ACCOUNTING ESTIMATES

The Company's significant accounting policies are summarized in Note 1 of its Consolidated Financial Statements in this Annual Report. While these significant accounting policies impact the Company's financial condition and results of operations, certain of these policies require management to use a significant degree of judgment and/or make estimates, consistent with generally accepted accounting principles, that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Since these are judgments and estimates, they are sensitive to changes in business and economic realities, and events may cause actual operating results to differ materially from the amounts derived from management's estimates and judgments.

The Company believes the following represent the most critical accounting judgments and estimates affecting its reported financial condition and results of operations:

Bad Debts

The Company estimates an allowance for doubtful accounts based on known factors related to the credit risk of each customer and management's judgment about the customer's business. Ten customers account for approximately 51% of the Company's sales. At September 30, 2012, the allowance for bad debts amounted to $32,000, which represented 1% of receivables.

Because of the Company's long term relationships with the majority of its customers, in most cases, the principal bad debt risk to the Company arises from the insolvency of a customer rather than its unwillingness to pay. In addition, in certain cases the Company maintains credit insurance covering up to 90% of the amount outstanding from specific customers. The Company also carries out some of its foreign trade, particularly in the Far East, using letters of credit.

The Company reviews all accounts receivable balances on a regular basis, concentrating on any balances that are more than 30 days overdue, or where there is an identified credit risk with a specific customer. A decision is taken on a customer-by-customer basis as to whether a bad debt reserve is considered necessary based on the specific facts and circumstances of each account. In general, the Company would reserve 100% of the receivable, net of any recoverable value added taxes or insurance coverages, for a customer that becomes insolvent or files for bankruptcy, and lesser amounts for less imminent defaults. The Company maintains a small bad debt reserve to cover the remaining balances based on historical default percentages.

If the financial condition of any of the Company's customers is worse than estimated or were to deteriorate, resulting in an impairment of its ability to make payments, the Company's results may be adversely affected and additional allowances may be required.

Inventories

Inventories are valued at the lower of cost or market value. Inventory costs include materials and overhead, and are relieved from inventory on a first-in, first-out basis. The Company's reported financial condition includes a provision for estimated slow-moving and obsolete inventory that is based on a comparison of inventory levels with forecasted future demand. Such demand is estimated based on many factors, including management judgments, relating to each customer's business and to economic conditions. The Company reviews in detail all significant inventory items with holdings in excess of estimated normal requirements. It also considers the likely impact of changing technology. It makes an estimate of the provision for slow moving and obsolete stock on an item-by-item basis based on a combination of likely usage based on forecasted customer demand, potential sale or scrap value and possible alternative use. This provision represents the difference between original cost and market value at the end of the financial period. In cases where there is no estimated future use for the
inventory item and there is no estimated scrap or resale value, a 100% provision is recorded. Where the Company estimates that only part of the total holding of an inventory item will not be used, or there is an estimated scrap, resale or alternate use value, then a proportionate provision is recorded. Once an item has been written down, it is not subsequently revalued upwards. The provision for slow moving and obsolete inventories at September 30, 2012 was $659,000, or 9% of the original cost of gross inventory. If actual future demand or market conditions are less favorable than those projected by management, or if product designs change more quickly than forecast, additional inventory write-downs may be required, which may have a material adverse impact on reported results.

Warranty Costs

The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, the Company's warranty obligation is affected by product failure rates and repair or replacement costs incurred in correcting a product failure. Accordingly, the provision for warranty costs is based upon anticipated in-warranty failure rates and estimated costs of repair or replacement. Anticipating product failure rates involves making judgments about the likelihood of defects in materials, design and manufacturing errors, and other factors that are based in part on historical failure rates and trends, but also on management's expertise in engineering and manufacturing. Estimated repair and replacement costs are affected by varying component and labor costs. Should actual product failure rates and repair or replacement costs differ from estimates, revisions to the estimated warranty liability may be required and the Company's results may be materially adversely affected. In the event that the Company discovers a product defect that impacts the safety of its products, then a product recall may be necessary, which could involve the Company in substantial unanticipated expense significantly in excess of the reserve. There were no safety related product recalls during the past three years.

Goodwill Impairment

At September 30, 2012, the Company's balance sheet reflected $1,435,000 of goodwill relating to the controls business. The Company carries out an assessment annually or more frequently if events or circumstances change, to determine if its goodwill has been impaired. The assessment is based on three separate methods of valuing the controls business based on expected free cash flows, the market price of the Company's stock and an analysis of precedent transactions. These valuation methods require estimates of future revenues, profits, capital expenditures and working capital requirements which are based on evaluation of historical trends, current budgets, operating plans and industry data. Based on all of these valuation methods, management concluded in 2012 that the goodwill had not been impaired. If, in future periods, the Company's results of operations, cash flows or the market price of the Company's stock were to decrease significantly, then it may be necessary to record an impairment charge relating to goodwill of up to $1,435,000.

Pension Plan Assumptions

The Company makes a number of assumptions relating to its pension plans in order to measure the financial position of the plans and the net periodic benefit cost. The most significant assumptions relate to the discount rate, the expected long term return on plan assets, and the rate of future compensation increase. If these assumptions prove to be incorrect then the Company may need to record, and may actually incur, additional expense or liabilities relating to the pension plans, which could have a material adverse effect on the Company's financial position and results of operations. At September 30, 2012 there was a pension liability on the Company's balance sheet of $10,264,000. The Company's pension plans are significant relative to the size of the Company. At September 30, 2012, pension plan assets were valued at $17,881,000, plan liabilities were $28,145,000, and the total assets of the Company were $23,561,000. In accordance with Financial Accounting Standards Board ("FASB") guidance, changes in the funded status of the pension plans (plan assets less plan liabilities) are recorded in the Company's balance sheet and could have a material effect on the Company's financial position.

The funded status of the Company's defined benefit pension plans deteriorated from a deficit of $7,634,000 at September 30, 2011 to a deficit of $10,264,000 at September 30, 2012. The increase in the deficit of $2,630,000 was due to several factors. The most significant factor was an actuarial loss of $3,639,000, of which $3,360,000 related to the Company's U.K. defined benefit plan and $279,000 related to the Company's U.S. defined benefit plan. The actuarial losses were largely the result of a reduction in the discount rate used by the U.K. pension plan from 5.45% at September 30, 2011 to 4.70% at September 30, 2012 and a reduction in the discount rate used by the U.S. pension plan from 4.55% at September 30, 2011 to 4.00% at September 30, 2012. The reductions in the discount rate were largely due to the effect of quantitative easing in the U.S. and U.K. by central banks driving down yields on government bonds. The increase in the pension liability deficit was partially offset by a curtailment gain of $907,000 arising from the freezing of the U.K. defined benefit plan at September 30, 2012.

The table below sets out the approximate impact on the funded status of the Company's pension plans at September 30, 2012 that the Company estimates would arise from the following respective changes in significant plan assumptions:

                                                Favorable
                                              (unfavorable)
                                                Impact on
                                              Funded Status
                                              (in thousands  Change in Funded
Plan Assumption         Change in Assumption   of dollars)        Status
Assumptions impacting
accumulated benefit
obligation:
Discount rate                  (0.1)%            $ (626)            6%
Inflation rate                  0.1%              (345)             3%
Mortality rate                 1 Year             (726)             7%

Income Taxes

The Company's effective tax rate is dependent on many factors, including the impact of enacted tax laws in jurisdictions in which the Company operates, the amount of earnings by jurisdiction, varying tax rates in each jurisdiction and the Company's ability to utilize foreign tax credits related to foreign taxes paid on foreign earnings that will be remitted to the U.S.

The Company accounts for income taxes under the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company's financial statements or income tax returns. Income taxes are recognized during the period in which the underlying transactions are recorded. Deferred taxes are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and such amounts as measured by tax laws. If the Company determines that a deferred tax asset arising from temporary differences is not likely to be utilized, the Company will establish a valuation allowance against that asset to record it at its expected realizable value. If the Company later determines, based on the weight of available evidence, that the deferred tax assets are more likely than not to be realized in the future, the allowance may be reversed in whole or in part. Management considers many factors when assessing the likelihood of future realization of the Company's deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carry-forward periods available for tax reporting purposes and other factors. The range of possible estimates relating to the valuation of the Company's deferred tax assets is very wide. Significant judgment is required in making these assessments and it is very difficult to predict when, if ever, management may conclude that any portion of the deferred tax assets is realizable. As of September 30, 2012, there is a partial valuation allowance against net deferred tax assets. If future experience is significantly different from that which was projected in making these assessments, there could be significant additional adjustments to the Company's deferred tax assets and income tax expense.

The Company recognizes uncertain tax positions when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. Although the Company believes that its tax positions are appropriate, the final determination of tax audits and any related litigation could result in material changes in the underlying estimates.

· A) Results of Operations

2012 compared to 2011

The following table compares the 2012 results, for both the controls and capacitor segments, with the prior year, showing separately the percentage variances due to currency exchange rate changes and volume.

                                    (in thousands of dollars)              Favorable (unfavorable) % change due to:
                                      2012               2011            Total             Currency            Volume
Sales
Controls - to external
customers                         $      33,825       $   30,039              12.6               (3.4 )              16.0
Capacitors- to external
customers                                 1,691            2,247             (24.7 )             (1.4 )             (23.3 )
Capacitors - inter-segment                   19               26             (26.9 )             (2.1 )             (24.8 )
Capacitors - total                        1,710            2,273             (24.8 )             (1.5 )             (23.3 )
Total sales to external
customers                                35,515           32,286              10.0               (3.3 )              13.3
Gross Profit
Controls                                 11,578           10,191              13.6               (0.3 )              13.9
Capacitors                                  592            1,108             (46.6 )             (0.8 )             (45.8 )
Total                                    12,170           11,299               7.7               (0.4 )               8.1
Selling, research and
administrative expenses, gain
on sale of fixed assets and
pension curtailment gain
Controls                                (10,805 )         (9,405 )           (14.9 )              3.0               (17.9 )
Capacitors                                 (678 )           (716 )             5.3                1.8                 3.5
Gain on sale of fixed assets                 17              447             (96.2 )                -               (96.2 )
Pension curtailment gain                    794                -             100.0                  -               100.0
Unallocated corporate
income(expense)                               2             (555 )            99.6                  -                99.6
Total                                   (10,670 )        (10,229 )            (4.3 )              2.1                (6.4 )
Operating income
Controls                                  1,584            1,233              28.5              (50.9 )              79.4
Capacitors                                  (86 )            392            (122.0 )              0.9              (122.9 )
Unallocated corporate
income(expense)                               2             (555 )            99.6                  -                99.6
Total                                     1,500            1,070              40.2              (58.2 )              98.4
Other income and expense                     96             (101 )           195.0              133.1                61.9
Income before income taxes                1,590              969              64.7              (37.5 )             102.2
Income taxes provision                     (401 )           (257 )           (56.0 )            (35.4 )             (91.4 )
Net income                        $       1,195       $      712              67.8              (38.3 )             106.1

The Company's main customers in the controls segment manufacture electric vehicles for on-road, off-road and industrial applications, including automotive, construction, distribution, mining, airport ground support and utility applications.

The year began with great momentum as the investments we made in 2011 began to translate into higher orders. In the first half of the year we grew sales in the on-road sector and the industrial sector began to recover. In the second half of the year the business environment began to soften as global macroeconomic factors affected sales of our customers' products and, as a result, demand for our controls. The poor fiscal situation in Europe in 2012 was one major factor that led to volatility for our products in all market sectors. In addition, shortened lead-times and customer start-up project technical issues unrelated to the Company had an effect on sales in the second half of the year. Looking forward to 2013, we believe the market weakness will continue to restrain sales and to add volatility to our business until the global economic environment stabilizes, allowing our customers to bring their new projects to market. However, we believe that the investments made in 2011 and 2012 in the Company's engineering and sales infrastructure will improve the potential for the business in this environment.

The Company's traditional markets for industrial applications reflected a modest increase in sales of 3% in 2012, compared to the prior year, as the global economy showed signs of strengthening in some areas. However, certain areas, including airport ground support and aerial work platform applications, were lower in 2012 than the prior year by approximately 10%, although this reduction was more than compensated for by increased sales to fork lift truck and mining customers of 17% and 3% respectively. Sales of controls for on-road electric vehicle applications increased 70% in 2012, which reflected continued progress in new product introductions and customer gains in this growing market.

In 2012, sales were $35,515,000, an increase of $3,229,000 or 10%, compared to 2011. In 2012, approximately 56% of the Company's sales were made outside the United States and were denominated in currencies other than the U.S. Dollar, principally the Euro and the British Pound; accordingly, those revenues are subject to fluctuation when translated into U.S. Dollars. In 2012, the average U.S. Dollar exchange rate was 2% and 7% lower compared to the British Pound and the Euro, respectively, than in 2011. As a result, foreign currency sales denominated in British Pounds and Euros translated into less U.S. Dollars. The overall impact to 2012 was that reported sales decreased by $1,062,000, or 3%, due to currency rate changes.

Excluding the currency impact, volumes shipped in the controls business segment in 2012 were $4,816,000 or 16% higher than in 2011. This increase compared to the prior year reflected higher sales in each of the regions in which the Company operates with the Far East and Europe ahead by 31% and 20% respectively, and North America 3%, higher than last year. The increase in sales volume in the Far East and Europe was largely due to continued customer gains in a range of on-road and off-road EV applications.

In the capacitor business, reported sales to external customers decreased by $556,000, or 25%, compared to 2011. Currency exchange rate changes decreased sales by $32,000, or 1%, and capacitor volumes shipped were $524,000, or 23%, lower than last year due principally to reduced demand from the railway signaling market.

Cost of sales was $23,345,000 compared to $20,987,000 in 2011, an increase of $2,358,000. The gross profit percentage in 2012 of 34.3% was 0.7% lower than in 2011 when it was 35.0%; the decrease in the gross profit percentage was principally due to an increase of $285,000 in 2012 in the reserve for slow moving and obsolete inventory in the controls segment, which reduced the 2012 gross profit percentage by 0.8%.

Foreign currency fluctuations had an unfavorable impact on gross profit of $41,000. This was due to the U.S. Dollar being marginally stronger in 2012 than in 2011 compared with the British Pound and the Euro, which had an unfavorable impact on sales of $1,062,000 but a favorable impact on cost of sales of $1,021,000. In the controls segment, gross profit of $11,578,000 or 34.2%, was $1,387,000 or 14% higher than last year, which was due to the 16% increase in volumes shipped in 2012 compared to last year.

In the capacitor segment gross profit of $592,000 was significantly lower than the 2011 gross profit of $1,108,000. The gross profit percentage was 34.6% of sales in 2012 compared to 49.3% of sales in 2011. The decrease in the capacitor business gross profit percentage was mainly due to a lower volume of sales to better margin sectors in 2012 compared to 2011 and also the impact of largely fixed overhead costs in cost of sales as a percentage of a lower sales total in 2012.

The table below analyzes the year-to-year change in sales, cost of sales and gross profit.

                                                                     (in thousands of dollars)
                                                            Sales        Cost of sales       Gross Profit
Actual 2011                                               $  32,286     $        20,987     $       11,299
Change in 2012 due to:
Foreign currency fluctuations                                (1,062 )            (1,021 )              (41 )
Increased volume, assuming 2011 gross profit percentage       4,291               2,789              1,502
All other cost of sales changes, net                                                590               (590 )
Actual 2012                                               $  35,515     $        23,345     $       12,170

Selling, research and administrative expenses, excluding a pension curtailment gain of $794,000 in 2012 and a one-time gain of $447,000 on the sale of fixed assets in 2011, increased by $805,000, or 7.5%, compared to 2011. Favorable foreign currency fluctuations decreased reported operating expenses by $218,000, or 2%, due to the stronger U.S. Dollar in 2012 compared to both the British Pound and the Euro in the prior year. The increase in selling, research and administrative expenses was largely due to higher employment costs compared to the same period last year, arising from the hiring of additional sales and engineering staff to support the current and future growth of the business. The Company recorded U.K. government grants of $200,000 in 2012 associated with research and development expense of $441,000 in the same period. In 2011, the Company recorded government grants of $600,000 associated with research and development expense of $1,714,000. The grants were recorded as a reduction of research and development expense in each period.

In 2012, the Company made the decision to freeze the defined benefit pension plan for U.K. employees effective September 30, 2012. As a result of the amendment, and in accordance with FASB guidance, the Company recognized a non cash pre-tax pension curtailment gain of $794,000 which was credited to operating income in the fourth quarter of 2012. This curtailment gain represented the unamortized prior service credit from a 2011 plan amendment to change the inflation index for deferred pension plan members from the Retail Prices Index to the Consumer Prices Index. The credit was previously recorded as a component of other comprehensive income and was being amortized to income over the average life expectancy of participants. In 2011, the Company recorded a one-time gain of $447,000 from the sale of fixed assets which included a gain of $451,000 on the sale of a surplus U.K. facility offset by a $4,000 write down of other fixed assets in the business.

An analysis of the year-to-year change in selling, research and administrative expenses, before gain on sale of fixed assets and pension curtailment gain, is set out below:

Selling, research and administrative expenses, before 2011 gain on       (in thousands
sale of fixed assets and 2012 pension curtailment gain                    of dollars)
Reported expense in 2012                                                 $      11,481
Reported expense in 2011                                                        10,676
Increase in expense                                                                805
Increase due to:
Effect of exchange rate changes                                                   (218 )
Higher research and sales and marketing expense, net of currency
effect                                                                             917
Higher administrative expense, net of currency effect                              106
Total increase in selling, research and administrative expenses,
before gain on sale of fixed assets in 2011 and pension curtailment
gain in 2012                                                             $         805

There was operating income for the year of $1,500,000 compared to $1,070,000 in 2011, an improvement of $430,000. This was due to several factors, including the 13% increase in sales volumes shipped and the pension curtailment gain, offset by higher operating expenses. The controls business reported operating income of $1,584,000 compared to $1,233,000 in 2011. There was an operating loss in the capacitor business of $86,000 compared with operating income of $392,000 in 2011.

Other income and expense was a net other income of $96,000 in 2012 compared to a net other expense of $101,000 in the previous year. The change year on year was largely due to a foreign currency exchange gain of $218,000 in 2012, compared to a foreign currency loss of $39,000 in 2011. Interest expense was $141,000, which was $77,000 higher than the prior year, due to higher average borrowings during 2012. Interest income was $17,000 higher at $19,000 compared to $2,000 in 2011, due to higher average cash balances when in surplus during 2012 compared with 2011.

Income before income taxes in 2012 was $1,596,000 compared to income before income taxes of $969,000 in 2011, an improvement year on year of $627,000. Foreign currency fluctuations increased pre-tax income by $436,000 in 2012; the pre-tax result, before the effect of the favorable currency fluctuations, was $191,000 higher than the prior year.

The Company recorded a provision for income tax of $401,000 or 25.1% of the pre-tax income for the year compared to an income tax provision of $257,000 in 2011. The income tax provision of 25.1% of pre-tax income was lower than the statutory Federal income tax rate of 34% for several reasons. There was a benefit of $118,000 due to U.K and French tax rates being lower than the Federal tax rate. The Company also recorded $322,000 of additional research and . . .