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

# FORM 10-Q

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

# For the quarterly
period ended: March 31, 2004

# Commission file number
0-18083

Williams Controls, Inc.(Exact name of registrant as specified in its charter)

|Delaware                                                      | 84-1099587                         
|------------------------------------------------------------- | -----------------------------------
|(State or other jurisdiction ofincorporation or organization) | (I.R.S. EmployerIdentification No.)

|14100 SW 72nd Avenue,Portland, Oregon   | 97224     
|--------------------------------------- | ----------
|(Address of principal executive office) | (zip code)

(503) 684-8600(Registrants
telephone number, including area code)

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
outstanding of the registrants common stockat April 30, 2004: 23,019,175



# DISCLOSURE REGARDING
FORWARD LOOKING STATEMENTS

This report, including the Notes
to Unaudited Consolidated Financial Statements, contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, those statements relating to development of new
products, the financial condition of the Company, the ability to increase distribution of
the Companys products, integration of businesses the Company acquires, and
disposition of any current business of the Company. Forward-looking statements can be
identified by the use of forward-looking terminology, such as may,
will, should, expect, anticipate,
estimate, continue, plans, intends, or
other similar terminology. These forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ materially from what is
anticipated or forecasted in these forward-looking statements due to numerous factors,
including, but not limited to, the ability of the Company to generate or obtain sufficient
working capital to continue its operations, changes in demand for the Companys
products, the timing of customer orders and deliveries, and the impact of competitive
products and pricing. In addition, such statements could be affected by general industry
and market conditions and growth rates, and general domestic and international economic
conditions.



# Williams Controls,
Inc.

# March 31, 2004

# Table of Contents

|                                                                     | PageNumber
|-------------------------------------------------------------------- | ----------
|Part I.  Financial Information                                       |           
|                                                                    
|Item 1. Financial Statements (unaudited)                            
|                                                                    
|Consolidated Balance Sheets, March 31, 2004 and                     
|September 30, 2003                                                   | 1         
|                                                                    
|Consolidated Statements of Operations, three and six months         
|ended March 31, 2004 and 2003                                        | 2         
|                                                                    
|Consolidated Statements of Cash Flows, six months ended             
|March 31, 2004 and 2003                                              | 3         
|                                                                    
|Notes to Consolidated Financial Statements                           | 4         
|                                                                    
|Item 2.  Management's Discussion and Analysis of Financial Condition
|and Results of Operations                                            | 12        
|                                                                    
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk  | 20        
|                                                                    
|Item 4.  Controls and Procedures                                     | 20        
|                                                                    
|Part II.  Other Information                                         
|                                                                    
|Item 1.  Legal Proceedings                                           | 21        
|                                                                    
|Item 2.  Changes in Securities and Use of Proceeds                   | 21        
|                                                                    
|Item 3.  Defaults Upon Senior Securities                             | 21        
|                                                                    
|Item 4.  Submission of Matters to a Vote of Security Holders         | 21        
|                                                                    
|Item 5.  Other Information                                           | 21        
|                                                                    
|Item 6.  Exhibits and Reports on Form 8-K                            | 21        
|                                                                    
|Signature Page                                                       | 23        



# Part I

Item 1. Financial
Statements

# Williams Controls,
Inc.Consolidated Balance Sheets  (Dollars in thousands,
except share and per share information) (Unaudited)

|                                                                | March 31,2004    |  | September 30,2003
|--------------------------------------------------------------- | ---------------- |  | -----------------
|
|Current Assets:                                                 |                  |  |                  
|Cash and cash equivalents                                       | $          4,425 |  | $            101 
|Trade accounts receivable, less allowance of                   
|$51 and $26 at March 31, 2004 and September 30                 
|2003, respectively                                              | 8,039            |  | 7,015            
|Other accounts receivable                                       | 419              |  | 7,185            
|Inventories, net                                                | 3,969            |  | 4,053            
|Prepaid expenses and other current assets                       | 561              |  | 330              
|                                                                |                  |  |                  
|Total current assets                                            | 17,413           |  | 18,684           
|                                                                |                  | 
|Property, plant, and equipment, net                             | 5,307            |  | 5,647            
|Other assets, net                                               | 559              |  | 576              
|                                                                |                  |  |                  
|Total assets                                                    | $         23,279 |  | $         24,907 
|                                                                |                  |  |                  
|LIABILITIES AND SHAREHOLDERS' DEFICIT                          
|Current Liabilities:                                           
|Accounts payable                                                | $          4,387 |  | $          4,027 
|Accrued expenses                                                | 6,196            |  | 8,796            
|Current portion of long-term debt and capital leases            | 331              |  | 4,658            
|                                                                |                  |  |                  
|Total current liabilities                                       | 10,914           |  | 17,481           
|                                                                |                  | 
|Long-term Liabilities:                                         
|Long-term debt and capital lease obligations                    | 234              |  | 402              
|Employee benefit obligations                                    | 7,313            |  | 8,095            
|Mandatory redeemable Convertible Series B Preferred Stock, net 
|(153,550 issued and outstanding at March 31, 2004 and          
|September 30, 2003)                                             | 17,632           |  | 16,072           
|                                                                |                  | 
|Commitments and contingencies                                  
|                                                                |                  | 
|Shareholders' Deficit:                                         
|Preferred stock ($.01 par value, 50,000,000 authorized)        
|Series A-1 (77,550 issued and outstanding at March 31,         
|2004 and September 30, 2003)                                    | 1                |  | 1                
|Series A (0 and 150 issued and outstanding at March 31, 2004   
|and September 30, 2003)                                         | -                |  | -                
|Common stock ($.01 par value, 50,000,000 authorized; 23,019,175
|and 20,125,492 issued and outstanding at March 31, 2004 and    
|September 30, 2003)                                             | 230              |  | 201              
|Additional paid-in capital                                      | 24,434           |  | 22,224           
|Accumulated deficit                                             | (31,148)         |  | (33,400)         
|Treasury stock (130,200 shares at March 31, 2004 and           
|September 30, 2003)                                             | (377)            |  | (377)            
|Other comprehensive loss - Pension liability adjustment         | (5,792)          |  | (5,792)          
|Shareholder note receivable                                     | (162)            |  | -                
|                                                                |                  |  |                  
|Total shareholders' deficit                                     | (12,814)         |  | (17,143)         
|                                                                |                  |  |                  
|Total liabilities and shareholders' deficit                     | $         23,279 |  | $         24,907 
|                                                                |                  |  |                  

See accompanying notes
to Unaudited Consolidated Financial Statements.

1



# Williams Controls, Inc.
Consolidated Statements of Operations (Dollars in thousands,
except share and per share information) (Unaudited)

|                                                                    | Three Months EndedMarch 31, | Six Months EndedMarch 31,
|------------------------------------------------------------------- | --------------------------- | -------------------------
|                                                                   
|Net sales                                                           |                             | $        14,477          
|Cost of sales                                                       |                             | 10,016                   
|                                                                    |                             |                          
|Gross margin                                                        |                             | 4,461                    
|                                                                    |                             |                          
|Operating expenses (income):                                        |                            
|Research and development                                            |                             | 768                      
|Selling                                                             |                             | 288                      
|Administration                                                      |                             | 1,297                    
|Gain on settlement with customer                                    |                             | --                       
|                                                                    |                             |                          
|Total operating expenses                                            |                             | 2,353                    
|                                                                    |                             |                          
|Operating income from continuing operations                         |                             | 2,108                    
|                                                                    |                             |                          
|Other (income) expenses:                                            |                            
|Interest income                                                     |                             | (1                       
|Interest expense - Debt                                             |                             | 18                       
|Interest expense - Series B Preferred Stock dividends and           |                            
|accretion                                                           |                             | 791                      
|Other income, net                                                   |                             | --                       
|                                                                    |                             |                          
|Total other expenses                                                |                             | 808                      
|                                                                    |                             |                          
|Income from continuing operations before income taxes               |                             | 1,300                    
|Income tax expense (benefit)                                        |                             | 54                       
|                                                                    |                             |                          
|Net income from continuing operations                               |                             | 1,246                    
|Discontinued operations:                                            |                            
|Loss from operations of discontinued operations                     |                             | 52                       
|Loss from sale of discontinued operations                           |                             | 32                       
|Gain from settlement of obligations                                 |                             | --                       
|                                                                    |                             |                          
|Total discontinued operations                                       |                             | 84                       
|                                                                    |                             |                          
|Net income                                                          |                             | 1,162                    
|Preferred dividends and accretion of Series B Preferred Stock       |                             | --                       
|                                                                    |                             |                          
|Net income (loss) allocable to common shareholders                  |                             | $          1,162         
|                                                                    |                             |                          
|Income (loss) per common share from continuing operations - basic   |                             | $            0.06        
|Income (loss) per common share from discontinued operations - basic |                             | 0.00                     
|                                                                    |                             |                          
|Net income (loss) per common share - basic                          |                             | $            0.06        
|                                                                    |                             |                          
|Weighted average shares used in per share calculation - basic       |                             | 21,051,728               
|                                                                    |                             |                          
|Income (loss) per common share from continuing operations - diluted |                             | $            0.04        
|Income (loss) per common share from discontinued operations -       |                            
|diluted                                                             |                             | 0.00                     
|                                                                    |                             |                          
|Net income (loss) per common share - diluted                        |                             | $            0.03        
|                                                                    |                             |                          
|Weighted average shares used in per share calculation - diluted     |                             | 56,039,412               
|                                                                    |                             |                          

See accompanying notes
to Unaudited Consolidated Financial Statements.

2



# Williams Controls,
Inc.Consolidated Statements of Cash Flows  (Dollars in thousands) (Unaudited)

|                                                                        | Six Months EndedMarch 31,
|----------------------------------------------------------------------- | -------------------------
|
|Cash flows from operating activities:                                   |                          
|Net income                                                              |                          
|Adjustments to reconcile net income to net cash provided by             |                          
|operating activities:                                                   |                          
|(Gain) loss from discontinued operations                                |                          
|Loss from sale of fixed assets                                          |                          
|Depreciation  and amortization                                          |                          
|Interest expense - Series B Preferred Stock dividends and accretion     |                          
|Gain on settlement with customer                                        |                          
|Gain from settlement of liabilities                                     |                          
|Changes in operating assets and liabilities                             |                          
|Receivables, net                                                        |                          
|Inventories                                                             |                          
|Accounts payable and accrued expenses                                   |                          
|                                                                        |                          
|Other                                                                   |                          
|                                                                        |                          
|Net cash provided by operating activities                               |                          
|                                                                        |                          
|Cash flows from investing activities:                                   |                          
|Purchases of property, plant and equipment                              |                          
|Net proceeds received from sale of assets                               |                          
|Proceeds from collection on note receivable                             |                          
|                                                                        |                          
|Net cash provided by (used in) investing activities                     |                          
|                                                                        |                          
|Cash flows from financing activities:                                   |                          
|Net payments of debt and lease obligations                              |                          
|Net proceeds from exercise of warrants                                  |                          
|Payment of Series A-1 dividends                                         |                          
|Redemption of Series A Preferred Stock and payment of dividends         |                          
|Repayment of subordinated debt                                          |                          
|Financing costs related to recapitalization                             |                          
|                                                                        |                          
|Net cash used in financing activities                                   |                          
|                                                                        |                          
|Net increase (decrease) in cash and cash equivalents                    |                          
|                                                                        |                          
|Cash and cash equivalents at beginning of period                        |                          
|                                                                        |                          
|Cash and cash equivalents at end of period                              |                          
|                                                                        |                          
|Supplemental disclosure of cash flow information:                       |                          
|Interest paid                                                           |                          
|Income taxes paid (refund)                                              |                          
|                                                                        |                          
|Supplemental disclosure of non-cash investing and financing activities: |                          
|Issuance of note receivable for common stock                            |                          
|Preferred dividends accrued but not paid and Series B accretion         |                          
|Issuance of common stock for services previously accrued                |                          
|Issuance of notes receivable for sale of property                       |                          

See accompanying notes
to Unaudited Consolidated Financial Statements.  3



# Williams Controls,
Inc.  Notes to Consolidated Financial Statements Three and Six Months ended March 31, 2004 and 2003
(Dollars in thousands, except share and per share amounts) (Unaudited)

Note 1. Organization

Williams Controls, Inc., including
its wholly-owned subsidiaries, Williams Controls Industries, Inc. (Williams);
Aptek Williams, Inc. (Aptek); Premier Plastic Technologies, Inc.
(PPT); ProActive Acquisition Corporation (ProActive); WMCO-Geo,
Inc. (GeoFocus); NESC Williams, Inc. (NESC); Williams
Technologies, Inc. (Technologies); Williams World Trade, Inc.
(WWT); Techwood Williams, Inc. (TWI); Agrotec Williams, Inc.
(Agrotec) and its 80% owned subsidiaries Hardee Williams, Inc.
(Hardee) and Waccamaw Wheel Williams, Inc. (Waccamaw) are
hereinafter referred to as the Company, we, our, or
us.

Note 2. Basis of
Presentation

The accompanying unaudited interim
consolidated financial statements have been prepared by the Company and, in the opinion of
management, reflect all material normal recurring adjustments, which are necessary to
present fairly the Companys financial position as of March 31, 2004 and the results
of its operations for the three and six months ended March 31, 2004 and 2003 and cash
flows for the six months ended March 31, 2004. The results of operations for the three and
six months ended March 31, 2004 are not necessarily indicative of the results to be
expected for the entire fiscal year.

Certain information and footnote
disclosures made in the last Annual Report on Form 10-K have been condensed or omitted for
the interim consolidated statements. Certain costs are estimated for the full year and
allocated to interim periods based on activity associated with the interim period.
Accordingly, such costs are subject to year-end adjustment. It is Managements
opinion that, when the interim consolidated statements are read in conjunction with the
September 30, 2003 annual report on Form 10-K, the disclosures are adequate to make the
information presented not misleading. The interim consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reported periods. On an ongoing basis, the Company
evaluates its estimates, including those related to its allowance for doubtful accounts,
impairment of long-lived assets, warranties, pensions and post-retirement benefit
obligations, income taxes, and commitments and contingencies. Actual results could differ
from these estimates and assumptions.

Certain reclassifications of amounts
reported in the prior period financial statements have been made to conform to
classifications used in the current period financial statements.

Note 3. Accounting for
stock based compensation

The Company has elected to account
for its stock-based compensation plans using the intrinsic value-based method under
Accounting Principles Board Opinion No. 25 (APB 25). Based on the provisions of Statement
of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, and SFAS No. 123, Accounting
for Stock-Based Compensation, the Company has computed, for pro forma disclosure
purposes, net income (loss) and net income (loss) per share as if the fair value based
method of accounting had been adopted.

During the three and six months ended
March 31, 2004, the Company granted stock options to certain employees and directors. As
such, the Company computed, for pro forma disclosure purposes, the value of all options
granted during the second quarter ended March 31, 2004, using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 using the following weighted average
assumptions for grants. There were no option grants during the three and six months ended
March 31, 2003.

4



|                        | Employee Grants |         | Director Grants |        
|----------------------- | --------------- | ------- | --------------- | -------
|Risk-free interest rate |                 | 3.33%   |                 | 3.54%  
|Expected dividend yield |                 | 0%      |                 | 0%     
|Expected lives          |                 | 7 years |                 | 7 years
|Expected volatility     |                 | 100%    |                 | 100%   

Using the Black-Scholes methodology,
the total value of options granted during the three and six months ended March 31, 2004
was $576, which would be amortized on a pro forma basis over the vesting period of the
options (typically five years). The weighted average per share fair value of options
granted during the three and six months ended March 31, 2004 was $.64 for the employee
grants and $.63 for the director grants. If the Company had accounted for its stock-based
compensation plans using the fair value-based method in accordance with SFAS No. 123, the
Companys net income (loss) and net income (loss) per share would approximate the pro
forma disclosures below:

|                                                                     | Three Months EndedMarch 31, 2004 |         | Six Months EndedMarch 31, 2004 |          
|-------------------------------------------------------------------- | -------------------------------- | ------- | ------------------------------ | ---------
|
|Net income (loss) allocable to common shareholders as reported       |                                  | $ 1,162 |                                | $    (37)
|                                                                     |                                  |         |                                |          
|Less: Total stock-based employee compensation expense                |                                 
|determined under fair value based method, net of related tax effects |                                  | (36)    |                                | (31)     
|                                                                     |                                  |         |                                |          
|Pro forma net income (loss)                                          |                                  | $ 1,126 |                                | $    (68)
|                                                                     |                                  |         |                                |          
|Earnings per share:                                                  |                                 
|Basic - as reported                                                  |                                  | $  0.06 |                                | $   0.00 
|                                                                     |                                  |         |                                |          
|Basic - pro forma                                                    |                                  | $  0.05 |                                | $   0.00 
|                                                                     |                                  |         |                                |          
|Diluted - as reported                                                |                                  | $  0.03 |                                | $   0.00 
|                                                                     |                                  |         |                                |          
|Diluted - pro forma                                                  |                                  | $  0.03 |                                | $   0.00 
|                                                                     |                                  |         |                                |          

Note 4. Comprehensive
Income

SFAS No. 130, Reporting
Comprehensive Income, requires companies to report a measure of all changes in
equity except those resulting from investments by owners and distributions to owners.
Total comprehensive income for the three months ended March 31, 2004 and 2003 was $1,162
and $625, respectively, and for the six months ended March 31, 2004 and 2003 was $2,252
and $1,520 respectively, and consisted solely of net income. As of March 31, 2004,
accumulated other comprehensive loss was ($5,792) and consisted of accumulated benefit
obligations in excess of the plan assets for both the Hourly Employees Pension plan and
the Salaried Employees Pension Plan.

Note 5. Income (Loss) Per
Share

Basic earnings per share
(EPS) and diluted EPS are computed using the methods prescribed by SFAS No.
128, Earnings Per Share. Basic EPS is based on the weighted-average number of
common shares outstanding during the period. Diluted EPS is based on the weighted-average
number of common shares outstanding and the dilutive impact of common equivalent shares
outstanding.

Following is a reconciliation of
basic EPS and diluted EPS from continuing operations:

5



|                                      | Three Months EndedMarch 31, 2004 |           | Three Months EndedMarch 31, 2003 |           
|------------------------------------- | -------------------------------- | --------- | -------------------------------- | ----------
|
|Net income from continuing operations |                                  | $   1,246 |                                  |           
|Less - Preferred dividends and        |                                 
|accretion of Series B preferred stock |                                  | --        |                                  |           
|                                      |                                  |           |                                  |           
|Basic EPS -                           |                                 
|Income (loss) allocable to common     |                                 
|shareholders from continuing          |                                 
|operations                            |                                  | $1,246    |                                  | 21,051,728
|                                      |                                  |           |                                  |           
|Effect of dilutive securities -       |                                 
|Stock options and warrants            |                                  | --        |                                  | 115,786   
|Preferred Stock - Series A            |                                  | --        |                                  | --        
|Preferred Stock - Series A-1          |                                  | --        |                                  | 11,750,000
|Preferred Stock - Series B            |                                  | 791       |                                  | 23,121,898
|                                      |                                  |           |                                  |           
|Diluted EPS -                         |                                 
|Income (loss) allocable to common     |                                 
|shareholders from continuing          |                                 
|operations                            |                                  | $2,037    |                                  | 56,039,412
|                                      |                                  |           |                                  |           

|                                      | Six Months EndedMarch 31, 2004 |           | Six Months EndedMarch 31, 2003 |           
|------------------------------------- | ------------------------------ | --------- | ------------------------------ | ----------
|
|Net income from continuing operations |                                | $   2,500 |                                |           
|Less - Preferred dividends and        |                               
|accretion of Series B preferred stock |                                | --        |                                |           
|                                      |                                |           |                                |           
|Basic EPS -                           |                               
|Income allocable to common            |                               
|shareholders from continuing          |                               
|operations                            |                                | $2,500    |                                | 20,586,079
|                                      |                                |           |                                |           
|Effect of dilutive securities -       |                               
|Stock options and warrants            |                                | --        |                                | 26,269    
|Preferred Stock - Series A            |                                | --        |                                | 1,017     
|Preferred Stock - Series A-1          |                                | --        |                                | 11,750,000
|Preferred Stock - Series B            |                                | 1,560     |                                | 22,696,113
|                                      |                                |           |                                |           
|Diluted EPS -                         |                               
|Income allocable to common            |                               
|shareholders from continuing          |                               
|operations                            |                                | $4,060    |                                | 55,059,478
|                                      |                                |           |                                |           

For the three and six months ended
March 31, 2004, the Company had options and warrants covering 2,743,254 shares that were
not considered in the dilutive EPS calculation since they would have been antidilutive.
For the three months ended March 31, 2003, the Company had options, warrants, convertible
preferred stock  Series A, convertible preferred stock  Series A-1 and
convertible preferred stock  Series B covering 40,953,636 shares that were not
considered in the EPS calculation compared to 26,774,245 shares for the six months ended
March 31, 2003 that were not considered in the dilutive EPS calculation since they would
have been antidilutive.

6



Note 6. Inventories

Inventories consist of the
following:

|                | March 31, 2004 |           | September 30, 2003
|--------------- | -------------- | --------- | ------------------
|Raw materials   |                | $   2,405 |                   
|Work in process |                | 348       |                   
|Finished goods  |                | 1,216     |                   
|                |                |           |                   
|                |                | $   3,969 |                   
|                |                |           |                   

Note 7. Patent License
Agreements

During fiscal 2003 the Company
obtained a license agreement for use of an adjustable pedal design for our heavy truck and
transit bus product lines. This agreement required an initial payment of $200, which was
paid in fiscal 2003, and royalty payments based on the number of units sold. As of
March 31, 2004, no units of this pedal design have been sold. The agreement is for a
period of three years and is renewed annually if certain sales thresholds are met.
Additionally, as part of the sale of the Companys passenger car and light truck
product lines to Teleflex Incorporated, the Company obtained the right to use certain of
Teleflexs adjustable pedal patents in exchange for Teleflex receiving licenses for
certain of the Companys patents.

Note 8. Settlement of
accounts payable and customer contingencies

In January 2003, the Company reached
a settlement with a prior customer on a cancelled supply contract from 1999. Under the
terms of the settlement, the Company received $900. Also included in this settlement was
the waiver of an accounts payable obligation with a certain vendor. The amount recorded on
the books for this obligation was $51. Based on this obligation being waived, this amount
is included in the overall gain recognized from this settlement. The gain of $951 is
reflected as Gain on settlement with customer within operating expenses of the
consolidated statements of operations for the three and six months ended March 31, 2003.

During fiscal 2001, the Company had a
product recall related to weld failures on certain electronic throttle control systems. In
November 2002, the Company reached a $163 total release and settlement of its accounts
payable balance to one of its vendors to recover certain previously incurred costs of the
recall. The settlement was recorded as a reduction of cost of sales during the first
quarter ended December 31, 2002 and is included in the accompanying statement of
operations for the six months ended March 31, 2003.

Note 9. Debt

The Company has a five-year revolving
and term loan agreement with its primary lender Wells Fargo Credit, Inc.
(Wells) which provides for $12,200 in revolving and term loans. Interest rates
under this agreement are currently Wells prime rate plus 2.00% for the revolving
debt and Wells prime rate plus 2.25% for the term loans. Fees under the loan
agreement include an unused revolver fee of .25% on the unused portion, a term loan
prepayment fee of 2% in the first year and 1% thereafter, and a revolving loan termination
fee of $200 in year 1 and $100 thereafter. The revolver and term loan A mature on July 1,
2007 and term loan B had an initial maturity of July 1, 2004. The loans are secured by
essentially all of the assets of the Company. On September 30, 2003 the Company completed
the sale of its passenger car and light truck electronic throttle control product lines.
Proceeds from this sale were received during the first quarter of fiscal 2004 and were
used to reduce the Companys bank debt obligations. Proceeds were used to pay off the
entire outstanding balance of the revolver, the outstanding balance of Term Loan B and a
portion of Term Loan A. The Company has available under its revolving credit facility
$7,874 and $3,854 at March 31, 2004 and September 30, 2003, respectively.

The Companys long-term debt
consists of the following:

7



|                                                         | March 31,2004 |          | September 30,2003 |        
|-------------------------------------------------------- | ------------- | -------- | ----------------- | -------
|Bank revolving credit facility due July 1, 2007, bearing |               |          |                   |        
|interest at a variable rate, (6.00% at March 31, 2004)   |              
|included in current liabilities                          |               | $     -- |                   | $3,578 
|                                                         |               |         
|Bank Term Loan A due July 1, 2007, balance bearing       |              
|interest at a variable rate, (6.25% at March 31, 2004)   |              
|payable in monthly installments of $23                   |               | 458      |                   | 1,050  
|                                                         |               |         
|Bank Term Loan B due July 1, 2004, balance bearing       |              
|interest at a variable rate, (6.25% at March 31, 2004)   |              
|payable in monthly installments of $33.  Repaid during   |              
|the first quarter of fiscal 2004                         |               | --       |                   | 300    
|Capital Leases                                           |               | 107      |                   | 132    
|                                                         |               |          |                   |        
|                                                         |               | 565      |                   | 5,060  
|                                                         |               |         
|Less current portion                                     |               | 331      |                   | 4,658  
|                                                         |               |          |                   |        
|                                                         |               | $   234  |                   | $   402
|                                                         |               |          |                   |        

Note 10. Product
Warranties

The Company establishes a product
warranty reserve based on a percentage of product sales. The established reserve is based
on historical return rates of products and amounts for significant and specific warranty
issues, and is included in accrued expenses in the accompanying consolidated balance
sheets. The warranty is limited to a specific time period, mileage or hours of use, and
varies by product and application. The Company has provided a reserve, which in the
opinion of management, is adequate to cover such warranty costs. Following is a
reconciliation of the changes in the Companys warranty reserve for the three and six
months ended March 31, 2004 and 2003:

|                              | Three and SixMonths EndedMarch 31,2004 |  |                               | Three and SixMonths EndedMarch 31,2003
|----------------------------- | -------------------------------------- |  | ----------------------------- | --------------------------------------
|Balance at September 30, 2003 | $ 2,432                                |  | Balance at September 30, 2002 | $ 1,293                               
|                              |                                        |  |                               |                                       
|Payments                      | (708)                                  |  | Payments                      | (186)                                 
|Additional accruals           | 230                                    |  | Additional accruals           | 156                                   
|Accrual adjustments           | --                                     |  | Accrual adjustments           | --                                    
|                              |                                        |  |                               |                                       
|Balance at December 31, 2003  | $ 1,954                                |  | Balance at December 31, 2002  | $ 1,263                               
|                              |                                        |  |                               |                                       
|Payments                      | (962)                                  |  | Payments                      | (211)                                 
|Additional accruals           | 637                                    |  | Additional accruals           | 1,147                                 
|Accrual adjustments           | (47)                                   |  | Accrual adjustments           | (181)                                 
|                              |                                        |  |                               |                                       
|Balance at March 31, 2004     | $ 1,582                                |  | Balance at March 31, 2003     | $ 2,018                               
|                              |                                        |  |                               |                                       

In January 2003, the Company was
notified of higher than normal warranty claims on one of its electronic throttle control
systems by one customer. Management is working with its customer to repair the defective
part. Management estimates that the total potential units involved is no more than 30,000
units and in the second quarter of fiscal 2003 recorded an accrual of $985 for the
estimated costs of the repairs. All the units that were in the customers inventory
have been returned or replaced. The remaining possible defective parts are installed on
vehicles and vehicle owners have been notified that the parts should be replaced. An
additional accrual of $336 was recorded during the fourth quarter of fiscal 2003. During
the second quarter of fiscal 2004, the Company reassessed this warranty reserve and
recorded an additional accrual of $165 based on actual results to date and the
Companys assessment of its remaining obligation. During the six months ended March
31, 2004, the Company made payments of $981 related to this warranty reserve. At March 31,
2004, the accrual was $285 and is included in the amounts above.

8



Note 11. Pension Plans

The Company maintains two pension
plans; one covers salaried employees and the other plan covers the Companys hourly
employees. Annual net periodic pension costs under the plans are determined on an
actuarial basis. In December 2003, SFAS No. 132 (revised) Employers
Disclosures about Pensions and Other Postretirement Benefits was issued. SFAS No.
132 (revised) requires additional disclosures about assets, obligations, cash flows and
net periodic benefit cost of defined benefit pension plans and other postretirement plans.
Disclosures regarding the components of net periodic benefit cost and contributions of
pension plans and other postretirement plans are required for interim financial statements
and are included below.

Components of Net
Periodic Benefit Cost:

|                                   | Salaried Employees PlanThree Months Ended March 31, |      | Hourly Employees PlanThree Months Ended March 31, |     
|---------------------------------- | --------------------------------------------------- | ---- | ------------------------------------------------- | ----
|
|Service Cost                       |                                                     | $ 27 |                                                   | $ 32
|Interest Cost                      |                                                     | 70   |                                                   | 73  
|Expected return on plan assets     |                                                     | (34) |                                                   | (41)
|Amortization of prior service cost |                                                     | --   |                                                   | --  
|Amortization of (gain) loss        |                                                     | 33   |                                                   | 21  
|                                   |                                                     |      |                                                   |     
|Net periodic benefit cost          |                                                     | $ 96 |                                                   | $ 85
|                                   |                                                     |      |                                                   |     

|                                   | Salaried Employees PlanSix Months Ended March 31, |        | Hourly Employees PlanSix Months Ended March 31, |       
|---------------------------------- | ------------------------------------------------- | ------ | ----------------------------------------------- | ------
|
|Service Cost                       |                                                   | $   54 |                                                 | $   64
|Interest Cost                      |                                                   | 140    |                                                 | 146   
|Expected return on plan assets     |                                                   | (68)   |                                                 | (82)  
|Amortization of prior service cost |                                                   | --     |                                                 | --    
|Amortization of (gain) loss        |                                                   | 66     |                                                 | 42    
|                                   |                                                   |        |                                                 |       
|Net periodic benefit cost          |                                                   | $ 192  |                                                 | $ 170 
|                                   |                                                   |        |                                                 |       

The Company previously disclosed in
its financial statements for the year ended September 30, 2003, that it expected to
contribute $2,098 to its pension plans in fiscal 2004. As of March 31, 2004, $550 of
contributions have been made. The Company presently anticipates increasing its total
contributions to $2,352 for the year ended September 30, 2004 to fund its pension plan
obligations in fiscal 2004.

Note 12. Preferred Stock

On July 14, 2002 the Company
exchanged newly authorized Series A-1 Preferred stock for approximately 99% of its Series
A Preferred stock in a transaction that involved the cancellation of all $1,413 of unpaid
dividends accrued on the Series A Preferred stock being exchanged. An equivalent amount of
dividends were accrued as a component of equity on the Series A-1 Preferred stock between
July 14, 2002 and September 30, 2002, after which the Series A-1 Preferred ceased to bear
dividends. The dividend was originally expected to be settled by the issuance of common
stock. At September 30, 2003, based on the unexpected change in the Companys
liquidity as a result of the sale of its passenger car and light truck product lines, the
Company decided to settle the dividend for cash and accordingly, the accrued dividend was
reclassified to current liabilities as of September 30, 2003. During the first quarter of
fiscal 2004, the entire amount of $1,413 of Series A-1 dividends was declared and paid. No
further dividends exist for Series A-1 Preferred Stock after the payment of the previously
accrued dividends.

In addition, during the first quarter
of fiscal 2004 the Company redeemed the remaining 150 shares of Series A Preferred Stock
for $22, which included accrued dividends of $7.

9



Note 13. Warrants and
Common Stock

In February 2001, the Company issued
12% secured subordinated debentures. For each purchaser of debentures, the Company issued
a three year warrant to purchase common stock of the Company, par value $0.01 per share
with a current price of $0.78 per share. The Company also issued the placement agent a
three year warrant to purchase shares of the Companys common stock equal to 7.0% of
the number of warrants issued to the purchasers. The exercise price of the placement agent
warrants is $0.78 per share. On March 1, 2004, certain warrant holders exercised 2,677,017
warrants at a price of $0.78 per share. The remaining warrants that were not exercised
expired on March 1, 2004.

In March 2004, the Company issued
216,667 shares of restricted common stock to certain employees at $0.75 per share, which
approximated the market value price at the date of the transaction. Cash from this
transaction was received in April 2004, thus, a note receivable has been reflected in
shareholders equity in the accompanying consolidated balance sheet at March 31,
2004. In addition, the Company issued stock options to each employee that purchased common
stock. The total options granted were 866,667 which vest over a five year period from the
date of grant.

Note 14. Discontinued
Operations

On February 13, 2004, the Company
sold substantially all of its assets associated with its NESC operations for $74. The
assets sold included inventories, property, plant and equipment and the right to a product
patent. In accordance with SFAS No. 144 Accounting for Impairment or Disposal of
Long-lived Assets, the Company recognized a loss from sale and loss from operations
in discontinued operations in the accompanying consolidated statement of operations
related to the sale of its NESC assets. During the first quarter of fiscal 2004, it was
determined the Company met the requirements of SFAS No. 144 to classify the assets to be
sold as Net Assets Held for Sale and accordingly the assets were written down
to their fair market value resulting in a $151 loss. During the second quarter of fiscal
2004, the Company recorded an additional $32 loss on the actual sale of these assets. The
total loss of $183 from the sale of discontinued operations for the six months ended March
31, 2004 was calculated based on the net proceeds of the assets sold less the current book
value at the date of the sale.

Net sales for NESC during the three
and six months ended March 31, 2004 were $26 and $181, respectively, and were removed from
total net sales in the accompanying consolidated statements of operations. NESC incurred
negative gross margin of $27 and total operating expenses of $25, respectively, for the
second quarter of fiscal 2004, which were also removed from the results of operations and
resulting in a net loss on operations of $52. For the first six months of fiscal 2004,
NESC incurred negative gross margin of $16 and total operating expenses of $49 resulting
in a net loss on operations of $65.

Net sales for NESC during the three
and six months ended March 31, 2003 were $120 and $251, respectively, and were removed
from total net sales in the accompanying consolidated statements of operations. NESC
incurred negative gross margin of $4 and total operating expenses of $46, respectively,
for the second quarter of fiscal 2003, which were also removed from the results of
operations and resulting in a net loss on operations of $50. For the first six months of
fiscal 2003, NESC incurred negative gross margin of $12 and total operating expenses of
$87 resulting in a net loss on operations of $99.

During the second quarter of fiscal
2003, the Company settled a lease obligation of its previously discontinued Kenco Williams
business. A gain of $120 resulted from this settlement, which has been recorded in
discontinued operations for the three and six months ended March 31, 2003 on the
accompanying consolidated statement of operations.

Note 15. Segment
Information

The Company accounts for its segments
in accordance with SFAS No. 131 Disclosures about Segments of an Enterprise and
Related Information. The Company historically operated in two business segments: (1)
vehicle components and (2) electrical components. As a result of terminating and selling
certain product lines, the Company had no significant operations in the electrical
components segment at March 31, 2004 and 2003. Accordingly the operations for the three
and six months ended March 31, 2004 and 2003 are presented as one segment in the
accompanying consolidated statement of operations.

In December 2002, the Company
recorded a $100 gain from the release of escrow funds related to the sale of GeoFocus, the
Companys previously owned global positioning system business and part of the
electrical components segment. The gain has been recorded in other (income) expense on the
accompanying consolidated statement of operations.

10



Note 16. Employment
Agreements

In January 2003, the Company entered
into employment agreements with its three executive vice presidents. Each contract is for
a term of four years beginning October 1, 2002 and specifies an initial base salary per
year, plus bonus based on parameters established by the board of directors. The agreements
also provide for a one-year severance payment under certain circumstances in the event the
Company terminates the agreements prior to the end of the contract period. The employment
agreement for one of the above mentioned executive vice presidents was assigned to
Teleflex, Incorporated as part of the sale of assets of our passenger car and light truck
product lines, however, the Company has retained an obligation for one-half of the
severance associated with the employment agreement under certain circumstances for a
period of one year from September 30, 2003. For the six months ended March 31, 2004, the
Company has paid $20 related to the severance associated with the employment agreement
assigned to Teleflex.

|Note 17. Contingencies
|----------------------

The Company and its subsidiaries are
involved in various lawsuits incidental to their businesses. It is the opinion of
management that the ultimate outcome of these actions will not have a material effect on
the Companys financial position or its results of operations.

The soil and groundwater at the
Companys Portland Oregon facility contain contaminants that the Company believes
were released on the property by previous property owners. Some of this contamination has
migrated offsite to a neighboring property. The Company has retained an environmental
consulting firm to investigate the extent of the contamination and to determine what, if
any, remediation will be required and the associated costs. Subsequent to March 31, 2004
the Company entered the Oregon Department of Environmental Qualitys voluntary
clean-up program. The Company is not certain at this time what, if any, cleanup activities
will be required. Additionally, the ultimate costs to the Company for investigation,
remediation and monitoring, if necessary, cannot be predicted with certainty due to the
amount of cleanup that may be required, the varying costs of alternative clean up methods
and the amount of time necessary to accomplish such cleanups, which would be paid over a
number of years. The Company estimates that the investigation costs will be approximately
$250, for which the Company provided a liability in the second quarter of fiscal 2004. As
additional information becomes known, it is reasonably possible that we will need to
increase our accrual for this estimated liability. Investigation costs, and remediation or
monitoring costs, if any, will be charged against the reserves as incurred. In the event
that remediation is required in the future, the Company will seek indemnification from the
prior property owner for some or all of the costs under the terms of the asset purchase
agreement, which we expect the prior property owner to dispute.

On May 12, 2003, Mr. Ziegler, the
Companys former president and chief executive officer, filed suit against the
Company, American Industrial Partners, L.P.; American Industrial Partners Fund III, L.P.,
and American Industrial Partners Fund III Corporation in the Circuit Court of the 15th
Judicial Circuit in and for Palm Beach County, Florida. In the suit, Mr. Ziegler alleges
that the Company breached an oral agreement with Mr. Ziegler to pay him
additional compensation, including a bonus of at least $500, for certain tasks
performed by Mr. Ziegler while he was the Companys president and chief executive
officer and seeks additional compensation to which he claims he is entitled. The Company
disputes the existence of an agreement and any liability to Mr. Ziegler.

Included in the accompanying
consolidated balance sheet are approximately $1,596 of old accounts payable related to
closed insolvent subsidiaries of the Company. Management does not believe they will
ultimately have to pay the full amount of these payables.

11



# Williams Controls,
Inc.

|Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
         (Dollars in thousands, except per share amounts)
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

Overview

We primarily design, produce and sell
electronic throttle controls systems for heavy trucks and busses. We have a significant
portion of the United States market for these products and a minor portion of the
international markets for the same products. We also manufacture pneumatic and hydraulic
control systems for the diesel heavy truck, transit bus and off-highway vehicles market.
Many of the customers for pneumatic and hydraulic control systems are the same customers
as for our diesel heavy truck and transit bus electronic throttle control systems.

Until September 30, 2003 we also
produced a product line of electronic throttle controls for passenger cars and light
trucks. We completed the sale of the assets related to these product lines on September
30, 2003. During 2003, net sales of passenger car and light truck electronic throttle
controls constituted approximately 9% of our total revenues. Following the sale of the
assets related to the passenger car and light truck product lines, all of our products are
produced in our Portland, Oregon facility.

Demand for electronic throttle
control devices and pneumatic and hydraulic control systems generally follow the economic
cycles for heavy truck and transit bus manufacturing and sales. While we believe we are
the market leader in the market for electronic throttle control systems for heavy trucks
and transit busses manufactured in the U.S., the markets for our products are highly
competitive in the U.S. and even more competitive in the international markets. Certain of
our competitors are suppliers with substantial financial resources and significant
technological capabilities. Major areas of focus for management of the Company are working
closely with our existing and potential customers to design and develop new products and
adapt existing products to new applications and improving the performance, reliability and
cost-effectiveness of our products.

The demand for electronic throttle
control systems is expanding into off highway vehicles as the major producers of those
products begin to convert gasoline-powered vehicles to electronic throttle control
systems. The initial electronic throttle control conversion has been in larger off highway
vehicles. Demand for electronic throttle controls will depend, in part, on how quickly
manufacturers proceed with the ongoing engine modifications that will require such systems
in all sizes and classes of off highway vehicles.

Critical Accounting
Policies and Estimates

We have identified the most critical
accounting principles upon which our financial status depends. We have determined the
critical principles by considering accounting policies that involve the most complex
decisions or assessments. We identified the most critical accounting policies to be those
related to impairment of long-lived assets, warranty and product recall, and pensions and
post-retirement benefit obligations.

Impairment of Long-Lived
Assets

We account for the impairment of
long-lived assets in accordance with FASB Statement No. 144. We test for impairment when
factors indicate that the asset may not be recoverable from future undiscounted cash flows
and calculate the amount of impairment using discounted cash flows. Estimates of future
cash flows require judgment and may change based on, among other things, the market for
our products, technology advances, and customer relationships. For the three and six
months ended March 31, 2004, a loss was recorded related to the sale of assets of our NESC
operations. Refer to Note 14 in the Notes to Unaudited Consolidated Financial Statements
for further information. For the three and six months ended March 31, 2003 there was no
impairment of long-lived assets.

Warranty and Product
Recall

We provide a warranty covering defects
arising from products sold. We have established a warranty reserve based on historical
return rates of products and amounts for significant and specific warranty issues. In
January 2003, the Company was notified of higher than normal warranty claims on one of its
electronic throttle control systems by one customer. Management is working with this
customer to repair the defective part. During the second quarter of 2003, an accrual of
$985 was recorded for the estimated cost of the repairs. An additional accrual of $336 was
recorded in the fourth quarter of 2003. During the second quarter of fiscal 2004, an
additional $165 was recorded related to this matter based on actual results

12



to date and
the Companys assessment of its remaining obligation. At this time, the Company
believes its warranty accrual for issues with this customer is reasonable and we do not
expect any further increases for this accrual in the future. While we believe our
estimates are reasonable, they are subject to change and such change could be material.

Pensions and
Post-retirement Benefit Obligations

We account for pensions and
post-retirement benefits in accordance with SFAS No. 87, Employers Accounting
for Pensions, and SFAS No. 106, Employers Accounting for Postretirement
Benefits Other Than Pensions. SFAS No. 87 requires the Company to calculate its
pension expense and liabilities using actuarial assumptions, including a discount rate
assumption and a long-term asset rate return assumption. Changes in interest rates and
market performance can have a significant impact on the Companys pension expense and
future payments. SFAS No. 106 requires the Company to accrue the cost of post-retirement
benefit obligations. The accruals are based on interest rates and the costs of health
care. Changes in interest rates and health care costs could impact post-retirement
expenses and future payments.

The Company provides health care and
life insurance benefits for certain of its retired employees, which includes prescription
drug benefits (Post Retirement Plan). In December 2003, the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (Act) was passed
whereby a prescription drug benefit under Medicare was enacted as well as a federal
subsidy to sponsors of retiree health care plans. Any measures of the APBO or net periodic
postretirement benefit cost in the financial statements or accompanying notes do not
reflect the effects of the Act on the Post Retirement Plan. The Company is unable to
determine at this time the expected impact of this law.

Results of Operations  Three
months ended March 31, 2004 compared to the three months ended March 31, 2003.

The following table sets forth, for
the periods indicated, selected statements of operations data expressed as a percentage of
net sales.

|                                                                    | Three Months EndedMarch 31, |      
|------------------------------------------------------------------- | --------------------------- | -----
|
|Net sales                                                           |                             | 100.0
|Cost of sales                                                       |                             | 69.2 
|                                                                    |                             |      
|Gross margin                                                        |                             | 30.8 
|Operating expenses (income):                                        |                            
|Research and development                                            |                             | 5.3  
|Selling                                                             |                             | 2.0  
|Administration                                                      |                             | 8.9  
|Gain on settlement with customer                                    |                             | --   
|                                                                    |                             |      
|Total operating expenses                                            |                             | 16.2 
|                                                                    |                             |      
|Operating income from continuing operations                         |                             | 14.6 
|                                                                    |                             |      
|Interest income                                                     |                             | 0.0  
|Interest expense - Debt                                             |                             | 0.1  
|Interest expense - Series B Preferred Stock dividends and accretion |                             | 5.5  
|Other (income) expenses, net                                        |                             | --   
|                                                                    |                             |      
|Income from continuing operations before income taxes               |                             | 9.0  
|Income tax expense (benefit)                                        |                             | 0.4  
|                                                                    |                             |      
|Net income from continuing operations                               |                             | 8.6  
|                                                                    |                             |      

Net Sales

Net sales from continuing operations
increased $1,423 or 10.9% to $14,477 in the second quarter of fiscal 2004 from $13,054 in
the second quarter of fiscal 2003. The net increase is a combination of a $2,688 increase
in sales to our heavy truck and transit bus customers offset by a $1,265 sales decline
related to our passenger car and light truck product lines, which were sold on September
30, 2003. The 22.8% increase in net sales to our heavy truck and transit bus customers is
due to increased sales volume resulting from a general increase in truck production
throughout the industry and the addition of a new

13



customer in the heavy truck product
line. All of the net sales for the quarter ended March 31, 2004 were from sales in our
heavy truck and transit bus product lines.

Gross margin

Gross margin was $4,461, or 30.8% of
net sales in the second quarter of 2004, an increase of $2,199 compared to the gross
margin of $2,262, or 17.3% of net sales in the comparable fiscal 2003 period. Included in
the second quarter of fiscal 2003 were negative gross margins of $469 from our passenger
car and light truck product lines, which were sold on September 30, 2003.

Electronic throttle, pneumatic and
hydraulic control systems for heavy trucks and transit busses showed an increase in gross
margin percentage of 8.7% to 31.9% of net sales during the three months ended March 31,
2004 from 23.2% of net sales during the comparable period of fiscal 2003. Included in this
gross margin in the second quarter of fiscal 2004 is an increase in cost of sales related
to recording an additional net $309 warranty accrual for product issues with one customer
as described in Note 10 and an increase in our general warranty accrual based on review of
product returns. Excluding these items, gross margin for heavy trucks and transit busses
for the quarter ended March 31, 2004 would have been 34.0% of net sales. Included in gross
margin for heavy trucks and transit busses in the quarter ended March 31, 2003 is a net
increase in cost of sales of $804 related to recording a $985 warranty accrual for product
issues with the one customer, as described in Note 10, offset by a $181 reduction in cost
of sales related to its assessment of the remaining obligation for a prior product recall
accrual. In addition, a reduction of cost of sales of $112 was recorded related to the
Companys obligations for certain union employee costs. Excluding these items, gross
margins for heavy trucks and transit busses would have been 30.9% of net sales for the
quarter ended March 31, 2003.

The overall increase in gross margin
during the second quarter of fiscal 2004 is primarily driven by a 22.8% increase in unit
sales of electronic throttle control systems to heavy truck and transit bus customers and
reductions in per unit labor and overhead costs. Labor costs between periods remained
consistent even though sales significantly increased. This is due to the elimination of
inefficiencies caused by the strike of our union employees during fiscal 2003. The strike
of our union employees was resolved in August 2003.

Operating expenses

Operating expenses were $2,353 for
the three months ended March 31, 2004 compared to $1,620 for the three months ended March
31, 2003, an increase of $733 or 45.2%. Included in the second quarter of 2003 operating
expenses was a $900 gain from cash received for settlement of a 1999 cancelled supply
contract claim with a prior customer. Also included in this settlement was the waiver of
an accounts payable obligation with a certain customer. The amount recorded on the books
for this obligation was $51. Based on this obligation being waived, this amount is
included in the overall gain recognized from this settlement. The entire gain of $951 is
reflected as Gain on settlement with customer within operating expenses of the
consolidated statements of operations for the three months ended March 31, 2003. Excluding
this gain in the second quarter of 2003, operating expenses during the second quarter of
2004 decreased $218 or 8.5% from the second quarter of 2003.

Excluding the second quarter 2003
gain noted above, research and development, selling and administration costs were $2,571
or 19.7% of net sales for the three months ended March 31, 2003 compared to $2,353 or
16.2% of net sales for the second quarter ended March 31, 2004.

Research and development expenses
decreased $210 or 21.5% to $768 for the second fiscal quarter of 2004 compared to $978 for
the comparable period in 2003. The lower research and development expenses is largely
attributable to a reduction of $365 of research and development expenses associated with
our passenger car and light truck product lines, which were sold on September 30, 2003.
This reduction is offset by a $155 increase in research and development expenses in our
heavy truck and transit bus product lines and is attributable to an increase in overall
project expenses for new pedal and adjustable pedal technology and a small increase in
personnel. The Companys research and development expenditures will fluctuate based
on the products under development at any given point in time.

Selling expenses decreased $47 or
14.0% to $288 for the quarter ended March 31, 2004 compared to $335 for the comparable
quarter ended March 31, 2003. This decrease is mainly due to the sale of our passenger car
and light truck product lines, which accounted for $107 of total selling expenses in the
second quarter of fiscal 2003 offset by a $60 increase in selling expenses for our heavy
truck and transit bus product lines due to a small increase in wages and increases in
travel expenses to our European and Asian customers.

14



Administration expenses for the three
months ended March 31, 2004 of $1,297 were higher than the $1,258 for the same fiscal
period in 2003, an increase of $39 or 3.1%. This increase is primarily a result of the Company
recording a $250 environmental accrual during the three months ended March 31, 2004 as
discussed in Note 17, offset by the sale of our passenger car and light truck product
lines as of September 30, 2003, which incurred $244 of administrative expenses in the
second quarter of fiscal 2003. In addition to the elimination of cost associated with the
passenger car and light truck product lines, there were reductions in legal, accounting,
corporate filing and professional fees of $59 partially offset by small increases in
insurance premiums and information technology expenses during the second quarter of fiscal
2004 compared to the second quarter of fiscal 2003. We expect these costs to be lower in
fiscal 2004 when compared to fiscal 2003.

Interest Expense

Interest expense on debt decreased
$140 or 88.6% to $18 in the second quarter of fiscal 2004 from $158 in the second quarter
of fiscal 2003. This reduction is primarily the result of paying off our subordinated debt
in fiscal 2003 and using the proceeds from the sale of our passenger car and light truck
product lines to pay off the entire outstanding balance of our revolving credit facility,
the outstanding balance of Term Loan B and a portion of Term Loan A during the first
quarter of fiscal 2004. Interest expense related to subordinated debt was $68 during the
second quarter ended March 31, 2003 and $0 for the corresponding period in fiscal 2004.
Interest expense related to our outstanding bank debt decreased $41 to $8 for the second
quarter of fiscal 2004 compared to $49 during the second quarter of fiscal 2003.

Interest expense on preferred stock
relates to dividends accrued on the Series B Preferred Stock during the second quarter of
fiscal 2004 and the related accretion. Based on the guidelines of Statement of Financial
Accounting Standards No. 150 (SFAS No. 150), the Company must now record all accrued
dividends associated with the Series B Preferred Stock as a component of interest expense.
Prior to the fourth quarter of fiscal 2003, all accrued dividends on the Series B
Preferred Stock were recorded as a component of net loss allocable to common shareholders.

Income Taxes

The Company is in a net operating
loss carry-forward position and is providing a 100% valuation allowance on all deferred
tax assets due to the uncertainty regarding their realization. Federal net operating
losses are subject to provisions of the Internal Revenue Code, which restrict the
utilization of this type of tax attribute in the event of an ownership change
(as defined in the Internal Revenue Code Section 382). Changes in ownership resulting from
the recapitalization transaction coupled with other future changes in ownership may
significantly defer the utilization of net operating loss carry forwards in the future.

Tax expense of $54 was recorded
during the quarter ended March 31, 2004 related to federal AMT and state estimated tax
payments.

Discontinued Operations

During the second quarter ended March
31, 2004, the Company sold certain assets of its NESC operations. A total loss of $84 from
discontinued operations was recorded in the quarter. A $32 loss on the sale of
discontinued operations was recorded based on the difference of proceeds received and the
recorded book value of assets sold. In addition, a loss of $52 from the second quarter
operations of NESC was recorded in discontinued operations for the three months ended
March 31, 2004. Refer to Note 14 of Notes to Unaudited Consolidated Financial Statements
for further discussion.

During the second quarter of fiscal
2003, the Company settled a lease obligation of its previously discontinued Kenco Williams
business. A gain of $120 resulted from this settlement, which has been recorded in
discontinued operations for the three months ended March 31, 2003 on the accompanying
statement of operations. This gain was offset by a $50 loss from operations of NESC for
the second quarter ended March 31, 2003.

Net income available to
common shareholders

Net income (loss) allocable to common
shareholders improved to $1,162 for the quarter ended March 31, 2004 compared to a loss of
$37 for the quarter ended March 31, 2003. This improvement in our results of operations is
due to the factors mentioned above, specifically, an increase in gross margin, reductions
in operating expenses and lower interest expense on debt. The sale of our passenger car
and light truck product lines on September 30, 2003 contributed to all of these factors.

15



Results of Operations  Six
months ended March 31, 2004 compared to the six months ended March 31, 2003.

The following table sets forth, for the
periods indicated, selected statements of operations data expressed as a percentage of net
sales.

|                                                                    | Six Months EndedMarch 31, |      
|------------------------------------------------------------------- | ------------------------- | -----
|
|Net sales                                                           |                           | 100.0
|Cost of sales                                                       |                           | 69.3 
|                                                                    |                           |      
|Gross margin                                                        |                           | 30.7 
|Operating expenses (income):                                        |                          
|Research and development                                            |                           | 5.1  
|Selling                                                             |                           | 2.1  
|Administration                                                      |                           | 8.0  
|Gain on settlement with customer                                    |                           | --   
|                                                                    |                           |      
|Total operating expenses                                            |                           | 15.2 
|                                                                    |                           |      
|Operating income from continuing operations                         |                           | 15.5 
|                                                                    |                           |      
|Interest income                                                     |                           | 0    
|Interest expense - Debt                                             |                           | 0.1  
|Interest expense - Series B Preferred Stock dividends and accretion |                           | 5.8  
|Other (income) expenses, net                                        |                           | 0.0  
|                                                                    |                           |      
|Income from continuing operations before income taxes               |                           | 9.6  
|Income tax expense (benefit)                                        |                           | 0.3  
|                                                                    |                           |      
|Net income from continuing operations                               |                           | 9.3  
|                                                                    |                           |      

Net Sales

Net sales increased $1,980 or 7.9% to
$27,015 in the first six months of fiscal 2004 from $25,035 in the first six months of
fiscal 2003. The net increase is a combination of a $4,008 increase in sales to our heavy
truck and transit bus customers offset by a $2,028 sales decline related to our passenger
car and light truck product lines, which were sold on September 30, 2003. The 17.4%
increase in net sales to our heavy truck and transit bus customers is due to increased
sales volume resulting from a general increase in truck production throughout the industry
and the addition of a new customer in the heavy truck product line. All of the net sales
for the six months ended March 31, 2004 were from sales in our heavy truck and transit bus
product lines.

Gross margin

Gross margin was $8,303, or 30.7% of
net sales in the first six months of 2004, an increase of $3,038 compared to the gross
margin of $5,265, or 21.0% of net sales, in the comparable fiscal 2003 period. Included in
gross margin for the first six months of fiscal 2003 were negative gross margins of $841
from our passenger car and light truck product lines, which were sold on September 30,
2003.

Electronic throttle, pneumatic and
hydraulic control systems for heavy trucks and transit busses showed an increase in gross
margin percentage of 5.3% to 31.8% of net sales during the six months ended March 31, 2004
from 26.5% of net sales during the comparable period of fiscal 2003. Included in gross
margin for heavy trucks and transit busses in the first six months of fiscal 2004 is an
increase in cost of sales related to recording an additional net $309 warranty accrual for
product issues with one customer as described in Note 10 and an increase in our general
warranty accrual based on review of product returns. Excluding these items, gross margin
for heavy trucks and transit busses for the six months ended March 31, 2004 would have
been 32.9% of net sales. Included in gross margin for heavy trucks and transit busses in
the six months ended March 31, 2003 is a net increase in cost of sales of $641 related to
recording a $985 warranty accrual for product issues with the one customer, as described
in Note 10 offset by a $344 reduction in cost of sales related to its assessment of the
remaining obligation for a prior product recall accrual. In addition, a reduction of cost
of sales of $112 was recorded related to the

16



Companys obligations for certain union
employee costs. Excluding these items, gross margins for heavy trucks and transit busses
would have been 29.8% of net sales for the six months ended March 31, 2003.

The overall increase in gross margin
during the first six months of fiscal 2004 is primarily driven by a 17.4% increase in
sales of electronic throttle control systems to heavy truck and transit bus customers and
reductions in per unit labor and overhead costs. Labor costs between periods remained
consistent even though sales significantly increased. This is due to the elimination of
inefficiencies caused by the strike of our union employees during fiscal 2003. Overhead
expenses decreased $175 from the prior year, due to the first six months of fiscal 2003
including strike costs. The strike of our union employees was resolved in August 2003.

Operating expenses

Operating expenses were $4,116 for
the six months ended March 31, 2004 compared to $3,901 for the six months ended March 31,
2003, an increase of $215 or 5.5%. Included in the first six months of fiscal 2003
operating expenses was a $900 gain from cash received for settlement of a 1999 cancelled
supply contract claim with a prior customer. Also included in this settlement was the
waiver of an accounts payable obligation with a certain customer. The amount recorded on
the books for this obligation was $51. Based on this obligation being waived, this amount
is included in the overall gain recognized from this settlement. The entire gain of $951
is reflected as a separate line Gain on settlement with customer within
operating expenses of the consolidated statements of operations for the six months ended
March 31, 2003. Excluding this gain, operating expenses during the first six months of
fiscal 2004 decreased $736 or 15.2% from the first six months of fiscal 2003.

Excluding the gain noted above,
research and development, selling and administration costs were $4,852 or 19.4% of net
sales for the six months ended March 31, 2003 compared to $4,116 or 15.2% of net sales for
the six months ended March 31, 2004.

Research and development expenses
decreased $373 or 21.3% to $1,378 for the first six months of 2004 compared to $1,751 for
the comparable period in 2003. The decrease in research and development spending is
primarily attributable to a reduction of $720 of research and development expenses
associated with our passenger car and light truck product lines, which were sold on
September 30, 2003. This reduction is offset by a $347 increase in research and
development expenses in our heavy truck and transit bus product lines. This increase is
attributable to an increase in overall project expenses for new pedal and adjustable pedal
technology and increases in personnel. The Companys research and development
expenditures will fluctuate based on the products under development at any given point in
time, however, we expect research and development expenses to remain at levels consistent
with the first six months of fiscal 2004 rather than the levels incurred in the first six
months of fiscal 2003.

Selling expenses decreased $101 or
15.2% to $562 for the six months ended March 31, 2004 compared to $663 for the comparable
period ended March 31, 2003. This decrease is mainly due to the sale of our passenger car
and light truck product lines, which accounted for $201 of total selling expenses in the
first six months of fiscal 2003 offset by a $100 increase in selling expenses for our
heavy truck and transit bus product lines due to a small increase in wages and increases
in travel expenses to our European and Asian customers.

Administration expenses for the six
months ended March 31, 2004 of $2,176 were lower than the $2,438 for the same fiscal
period in 2003, a reduction of $262 or 10.7%. This decrease is primarily a result of the
sale of our passenger car and light truck product lines, which incurred $503 of
administrative expenses during the first six months of fiscal 2003. In addition to the
elimination of costs associated with the passenger car and light truck product lines,
there were reductions in legal, accounting, corporate filing and professional fees of $220
partially offset by small increases in insurance premiums and information technology
expenses and the recording of a $250 environmental accrual, as discussed in Note 17,
during the first six months of fiscal 2004 compared to the first six months of fiscal
2003.

Interest Expense and
Other Income

Interest expense on debt decreased
$288 or 88.1% to $39 in the first six months of fiscal 2004 from $327 in the first six
months of fiscal 2003. This reduction is primarily the result of paying off our
subordinated debt in fiscal 2003 and using the proceeds from the sale of our passenger car
and light truck product lines to pay off the entire outstanding balance of our revolving
credit facility, the outstanding balance of Term Loan B and a portion of Term Loan A
during the first quarter of fiscal 2004. Interest expense related to subordinated debt was
$149 during the six months ended March 31, 2003 and $0 for

17



the corresponding period in
fiscal 2004. Interest expense related to our outstanding bank debt decreased $99 to $17
for the first six months of fiscal 2004 compared to $116 during the first six months of
fiscal 2003.

Interest expense on preferred stock
relates to dividends accrued on the Series B Preferred Stock during the six months ended
March 31, 2004 and the related accretion. Based on the guidelines of Statement of
Financial Accounting Standards No. 150 (SFAS No. 150), the Company must now record all
accrued dividends associated with the Series B Preferred Stock as a component of interest
expense. Prior to the fourth quarter of fiscal 2003, all accrued dividends on the Series B
Preferred Stock were recorded as a component of net loss allocable to common shareholders.

Other income decreased $136 to $5 for
the six months ended March 31, 2004 from $141 in the first six months of fiscal 2003. This
decrease is primarily due to recording a $100 gain from the release of escrow funds
related to the sale of GeoFocus in fiscal 2003 as described in Note 15 in the Notes to
Unaudited Consolidated Financial Statements.

Income Taxes

The Company is in a net operating
loss carry-forward position and is providing a 100% valuation allowance on all deferred
tax assets due to the uncertainty regarding their realization. Federal net operating
losses are subject to provisions of the Internal Revenue Code, which restrict the
utilization of this type of tax attribute in the event of an ownership change
(as defined in the Internal Revenue Code Section 382). Changes in ownership resulting from
the recapitalization transaction coupled with other future changes in ownership may
significantly defer the utilization of net operating loss carry forwards in the future.

Tax expense of $94 was recorded
during the six months ended March 31, 2004 related to federal AMT and state estimated tax
payments. A tax benefit of $300 was recorded in the six months ended March 31, 2003
resulting from filing an amended federal 1998 tax return in the first quarter of fiscal
quarter 2003.

Discontinued Operations

During the second quarter ended March
31, 2004, the Company sold certain assets of its NESC operations. In the first quarter of
fiscal 2004, it was determined a write-down of these assets was required, resulting in a
$151 loss. During the second quarter of fiscal 2004, the Company recorded an additional
loss of $32 from the sale of discontinued operations based on the difference of proceeds
received and the recorded book value of assets sold at the date of the sale. In addition,
a loss of $65 from the operations of NESC was recorded in discontinued operations for the
six months ended March 31, 2004. Refer to Note 14 of Notes to Unaudited Consolidated
Financial Statements for further discussion.

During the second quarter of fiscal
2003, the Company settled a lease obligation of its previously discontinued Kenco Williams
business. A gain of $120 resulted from this settlement, which has been recorded in
discontinued operations for the six months ended March 31, 2003 on the accompanying
statement of operations. This gain was offset by a $99 loss from operations of NESC for
the six months ended March 31, 2003.

Net income available to
common shareholders

Net income allocable to common
shareholders increased to $2,252 for the six months ended March 31, 2004 compared to $209
in the comparative prior year period. This improvement in our results of operations is due
to the factors mentioned above, specifically, an increase in gross margin, reductions in
operating expenses and lower interest expense on debt. The sale of our passenger car and
light truck product lines on September 30, 2003 contributed to all of these factors.

Financial Condition,
Liquidity and Capital Resources

Cash generated from continuing
operations was $2,613 for the first six months of 2004, an increase of $266 over the cash
generated from operations of $2,347 during the first six months of fiscal 2003. Although
we anticipated that cash flows from continuing operations will improve with the sale of
our passenger car and light truck product lines on September 30, 2003, timing of certain
payments decreased the cash generated from continuing operations in the first six months
of fiscal 2004. Cash was used to pay $729 of accrued bonuses related to fiscal year 2003,
$336 of which related to the sale of the passenger car and light truck product lines.
Additionally, warranty payments in excess of warranty accruals were $803 and almost
entirely were due to payments to one customer for one warranty claim that is in excess of
normal warranty. For the six months ended March 31, 2003 warranty payments were
significantly lower than warranty accruals. The Company also made contributions of $550 to
its pension plans during the first six months of fiscal 2004 compared to $107 for the six
months ended March 31, 2003.

18



Cash flows from operations improved
through net income of $2,252 compared to net income of $1,520 for the six months ended
March 31, 2003. Cash flows from operations also increased during the first quarter of
fiscal 2004 due to $1,560 of non-cash interest expense on preferred dividends and Series B
accretion. The Company expects non-cash interest expense on preferred dividends to
continue to increase throughout the year as we accrue dividends each month for the Series
B preferred stock.

In addition to the reductions in
accounts payable and accrued expenses for the payment of bonuses related to the sale of
our passenger car and light truck product lines and the payment of other bonuses and
warranty claims discussed above, cash was also used during the first quarter of fiscal
2004 to pay insurance premiums for fiscal 2004 in October 2003, which amounted to $733. In
fiscal 2003, the insurance premiums were financed through the issuance of a promissory
note, which was paid off during the first nine months of fiscal 2003.

We believe we will continue to
generate positive cash from continuing operations due to our improved financial condition
and due to the elimination of our passenger car and light truck product lines, which were
sold on September 30, 2003. With the sale of our passenger car and light truck product
lines, we expect gross margins to improve as these product lines generated negative gross
margins in fiscal 2003. We expect operating expenses to decrease as a result of the sale
of these product lines and interest expense to decrease in the current year due to using
the proceeds from this sale to pay off the entire outstanding balance of the bank
revolving credit facility, the outstanding balance of Term Loan B and a portion of Term
Loan A. Our remaining bank debt after applying these proceeds was $458 at March 31, 2004.
Availability under our revolving credit facility improved to $7,874 at March 31, 2004
compared to $3,854 at September 30, 2003. The increase in our availability is directly
attributable to the payoff of our revolving credit facility.

Cash provided by investing activities
was $5,549 for the six months ended March 31, 2004 and was comprised of $6,010 of net
proceeds from the sale of assets from our passenger car and light truck product lines
offset by $468 of purchases of equipment. This compared to purchases of equipment of $798
for the six months ended March 31, 2003. Excluding net proceeds from the sale of assets,
we expect our cash use for investing activities to increase throughout the fiscal year as
we continue to make purchases of capital equipment. We currently anticipate spending
approximately $1,716 in capital expenditures for the entire fiscal year ended September
30, 2004.

Cash used in financing activities was
$3,838 for the six months ended March 31, 2004 compared to cash used in financing
activities of $2,231 for the six months ended March 31, 2003. The increase in cash used in
financing activities primarily relates to the payoff of our revolving credit facility,
Term Loan B and a portion of Term Loan A during the first quarter of fiscal 2004. As noted
above, using the proceeds from the sale of our passenger car and light truck product
lines, we were able to significantly reduce our debt obligations. In addition, we paid
$1,413 of Series A-1 Preferred stock dividends during the first quarter of fiscal 2004.
During the second quarter of fiscal 2004, the Company received proceeds of $2,092 related
to the issuance of common stock from the conversion of warrants as discussed in Note 13.

At March 31, 2004, our contractual
obligations consisted of bank debt of $458, capital leases of $107, and operating lease
commitments, which at March 31, 2004 are $23 due during the remaining of fiscal year 2004,
$35 due in 2005 and $17 in 2006. We do not have any material letters of credit, purchase
commitments, or debt guarantees outstanding at March 31, 2004.

Due to the reduction in interest
rates and reduction in the fair value of assets, cash payments to fund our pension
obligations will increase significantly in fiscal 2004 as compared to fiscal 2003.
However, we have $7,874 available under our revolving credit facility at March 31, 2004
plus cash at March 31, 2004 of $4,425, and we believe this availability along with cash
provided by operations will be adequate to meet our cash needs in fiscal 2004.

The Company has mandatory redeemable
convertible Series B Preferred Stock, which is mandatorily redeemable on July 1, 2009 for
$15,355 plus accrued dividends. Series B Preferred Stock dividends at March 31, 2004 are
reflected in mandatory redeemable convertible Series B Preferred Stock on the accompanying
consolidated balance sheet.

Included in the accompanying
consolidated balance sheet is approximately $1,596 of accounts payable incurred primarily
prior to 2001 related to closed insolvent subsidiaries of the Company. Management does not
believe they will ultimately have to pay the full amount of these payables.

Recent FASB
Pronouncements

In December 2003, the FASB issued SFAS
No. 132 (Revised 2003), Employers Disclosures about Pensions and Other
Postretirement Benefits  An Amendment of FASB Statements No. 87, 88, and 106".
This statement increases the existing GAAP disclosure requirements by requiring more
details about pension plan assets, benefit obligations, cash flows, benefit costs

19



and
related information. Companies will be required to segregate plan assets by category, such
as debt, equity and real estate, and to provide certain expected rates of return and other
informational disclosures. This statement also requires companies to disclose various
elements of pension and postretirement benefit costs in interim period financial
statements for quarters beginning after December 15, 2003. The Company adopted the
disclosure provisions of this statement in the second quarter of fiscal 2004.

Item 3. Quantitative and
Qualitative Disclosures About Market Risk

The Company has $458 in short and
long-term debt, held by its bank, with interest rates that change in accordance with the
terms of the relevant debt instruments. As a result, the Company may be exposed to risks
associated with future interest rate changes on its debt. The Company does not believe
that a hypothetical 10 percent change in end of period interest rates would have a
material effect on the Companys cash flow.

Item 4. Controls and
Procedures

Evaluation of Disclosure
Controls and Procedures

The Companys Chief Executive Officer
and Chief Financial Officer, have evaluated the effectiveness of the our disclosure
controls and procedures as of the end of the period covered by this report pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange
Act)). Based on that evaluation, the Companys Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of the period covered by this
report, our disclosure controls and procedures are effective in ensuring that information
required to be disclosed in our Exchange Act reports is (1) recorded, processed,
summarized and reported in a timely manner, and (2) accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.

Changes in Internal
Controls

There has been no change in the
Companys internal controls over financial reporting that occurred during our last
fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.

20



# Part II. Other
Information

Item 1. Legal Proceedings

We are parties to various pending
judicial and administrative proceedings arising in the ordinary course of business. Our
management and legal counsel have reviewed the probable outcome of these proceedings, the
costs and expenses reasonably expected to be incurred, the availability and limits of our
insurance coverage, and our established reserves for uninsured liabilities. While the
outcome of the pending proceedings cannot be predicted with certainty, based on our
review, we believe that any liability that may result is not reasonably likely to have a
material effect on our liquidity, financial condition or results of operations.

Item 2. Changes in
Securities and Use of Proceeds

In February 2001, the Company issued
12% secured subordinated debentures. For each purchaser of debentures, the Company issued
a three year warrant to purchase common stock of the Company, par value $0.01 per share
with a current price of $0.78 per share. The Company also issued the placement agent a
three year warrant to purchase shares of the Companys common stock equal to 7.0% of
the number of warrants issued to the purchasers. The exercise price of the placement agent
warrants is $0.78 per share. The warrants issued to each purchaser and to the placement
agent expired on March 1, 2004. On March 1, 2004, certain warrant holders exercised
2,677,017 warrants at a price of $0.78 per share. The remaining warrants that were not
exercised expired on March 1, 2004 per the warrant agreement.

In March 2004, the Company issued
216,667 shares of restricted common stock to certain employees at $0.75 per share, which
approximated the market value price at the date of the transaction. Cash from this
transaction was received in April 2004, thus, a note receivable has been reflected in
shareholders equity in the accompanying consolidated balance sheet. In addition, the
Company issued stock options with a grant price of $0.77 per share to each employee that
purchased common stock. The total options granted were 866,667 which vest over a five year
period from the date of grant.

Item 3. Defaults Upon
Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits and
Reports on Form 8-K

| | (a) |  | Exhibits
| | --- |  | --------

| |  | 2.1 |  | Asset
Purchase Agreement, dated as of September 30, 2003, by and among the Company, Teleflex
Incorporated and Teleflex Automotive Incorporated (Incorporated by reference to
Exhibit 2.1 to the Registrants current reporton Form 8-K filed on December
9, 2003)
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.1 |  | Certificate
of Incorporation of the Registrant as amended. (Incorporated by reference to Exhibit
3.1 to the Registrantsannual report on form 10-K for the fiscal year ended
September 30, 1995).
| |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.2 |  | Certificate
to Provide for the Designation, Preferences, Rights, Qualifications, Limitations or
Restrictions Thereof, of the Series A Preferred Stock, 7 1/2% Redeemable Convertible
Series (Incorporated by reference to Exhibit 3.1 tothe Registrants
quarterly report on form 10-Q for the quarter ended March 31, 1998).
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21



| |  | 3.3 |  | Certificate
to Provide for the Designation, Preferences, Rights, Qualifications, Limitations or
Restrictions Thereof, of the Series A-1 Preferred Stock, Non-Redeemable Convertible
Series. (Incorporated by reference to Exhibit 3.3 tothe Registrants
quarterly report on form 10-Q for the quarter ended June 30, 2002).
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.4 |  | Certificate
to Provide for the Designation, Preferences, Rights, Qualifications, Limitations or
Restrictions Thereof, of the Series B Preferred Stock, 15% Redeemable Convertible Series
(Incorporated by reference to Exhibit (d)(v) tothe Schedule TO-I/A filed on
July 5, 2002).
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.5 |  | Certificate
of Elimination for Mandatory Preferred Stock (Incorporated by reference to Exhibit
(d)(vi) to the ScheduleTO-I/A filed on July 5, 2002).
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.6 |  | Restated
By-Laws of the Registrant as amended July 1, 2002. (Incorporated by reference to
Exhibit 3.6 to the Registrantsquarterly report on form 10-Q for the quarter
ended June 30, 2002).
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.1 |  | Series
B Preferred Stock Purchase Agreement, dated May 31, 2002. (Incorporated by reference to
Exhibit (d)(i) to the                            Schedule TO-I/A filed on June 11, 2002).
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.2 |  | Series
B Preferred Registration Rights Agreement, dated as of July 1, 2002, by and among the
Company, American Industrial Partners Capital Fund III, L.P., and Dolphin Offshore
Partners L.P. (Incorporated by reference to Exhibit(d)(vii) to the Schedule
TO-I/A filed on July 5, 2002).
| |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.3 |  | Series
B Preferred Shareholder Agreement, by and among the Company, American Industrial Partners
Capital Fund III, L.P.,                            Dolphin Offshore Partners L.P. and
Eubel, Brady & Suttman Asset Management, Inc. (Incorporated by reference
                           to Exhibit (d)(viii) to the Schedule TO-I/A filed on July 5,
2002).
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.4 |  | Series
A-1 Preferred Registration Rights Agreement, dated as of July 15, 2002, by and among the
Company and the holders of Series A-1 Preferred Stock. (Incorporated by reference to
Exhibit 4.5 to the Registrants quarterly report on Form 10-Q for the quarter
ended June 30, 2002).
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.5 |  | Form
of Amended and Restated Subordinated Debenture Due July 1, 2004 (Incorporated by
reference to Exhibit (d)(xii) to theSchedule TO-I/A filed on July 5, 2002).
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.6 |  | Form
of warrant (Incorporated by reference to Exhibit (d)(iii) to the Schedule TO-I/A filed
on June 11, 2002).
| |  | --- |  | --------------------------------------------------------------------------------------------------------------

| |  | 31.1 |  | Certification
of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) (Filed herewith).
| |  | ---- |  | -------------------------------------------------------------------------------------------------------

| |  | 31.2 |  | Certification
of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) (Filed herewith).
| |  | ---- |  | -------------------------------------------------------------------------------------------------------

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

| |  | 32.2 |  | Certification
of Dennis E. Bunday 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
| | --- |  | -------------------

| | On
February 10, 2004, the Company filed a current report on Form 8-K to provide under Item 7
and 12 a press release reporting the release of earnings for the first quarter of fiscal
2004. Such information shall not be deemed filed for purposes of Section 18
of the Securities Exchange Act of 1934.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22



# 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.

|                    | WILLIAMS CONTROLS, INC.                                                          
|------------------- | ---------------------------------------------------------------------------------
|                    |                                                                                  
|                    |                                                                                  
|Date:  May 13, 2004 | /s/ R. EUGENE GOODSONChairman of the Board, President and Chief Executive Officer
|                    |                                                                                  
|                    |                                                                                  
|                    | /s/ DENNIS E. BUNDAY
Dennis E. BundayChief Financial Officer                     

23