---

---

|                                                          
|----------------------------------------------------------
|UNITED STATES                                             
|SECURITIES AND EXCHANGE COMMISSION                        
|Washington,
 D.C. 20549                                   
|                                                          
|FORM 10-Q                                                 
|                                                          
|xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE 
|SECURITIES
 EXCHANGE ACT OF 1934                          
|                                                          
|For the quarterly period ended: December 31, 2010         
|                                                          
|oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE
|SECURITIES
 EXCHANGE ACT OF 1934                          
|                                                          
|For the transition period
 from          to               
|                                                          
|Commission file number 0-18083                            
|                                                          
|Williams Controls, Inc.                                   
|(Exact name of registrant as specified in its charter)    

|                                                                |                                      
|--------------------------------------------------------------- | -------------------------------------
|Delaware                                                        | 84-1099587                           
|(State or other jurisdiction of
 incorporation or organization) | (I.R.S. Employer
 Identification 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 o                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                         
|Indicate
 by check mark whether the registrant has submitted electronically and posted
 on its corporate web site, if any, every Interactive Data File required to be
 submitted and posted to Rule 405 of Regulation S-T (section 232.405 of this
 chapter) during the preceding 12 months (or for such shorter period that the
 registrant was required to submit and post such files).
|Yes o No o                                                                                                                                                                                                                                                                                                                                                                               

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act

| |                            |                             | 
| | -------------------------- | --------------------------- | 
| | Large
 accelerated filer o | Accelerated
 filer o        | 
| |                            |                             | 
| | Non-accelerated
 filer o   | Smaller reporting company x | 

|                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------
|Indicate
 by check mark whether the registrant is a shell company (as defined in Rule
 12b-2 of the Exchange Act)
|Yes o No x                                                                                                       

The number of shares outstanding of the
registrants common stock
as of January 31, 2011: 7,292,944

---

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Williams Controls, Inc.

December 31, 2010

Table of Contents

|                              |                |                                                                                                |              |  | 
|----------------------------- | -------------- | ---------------------------------------------------------------------------------------------- | ------------ |  | 
|                              |                |                                                                                                | Page
 Number
|                              |                |                                                                                                |             
|Part I. Financial Information |                |                                                                                               
|                              |                |                                                                                                |              | 
|                              | Item 1.        | Financial Statements (unaudited)                                                               |              | 
|                              |                |                                                                                                |              | 
|                              |                | Condensed Consolidated Balance Sheets, December 31, 2010 and September 30, 2010                | 1            | 
|                              |                |                                                                                                |              |  | 
|                              |                | Condensed Consolidated Statements of Operations, three months ended December 31, 2010 and 2009 | 2            | 
|                              |                |                                                                                                |              |  | 
|                              |                | Condensed Consolidated Statements of Cash Flows, three months ended December 31, 2010 and 2009 | 3            | 
|                              |                |                                                                                                |              |  | 
|                              |                | Notes to Unaudited Condensed Consolidated Financial Statements                                 | 4            | 
|                              |                |                                                                                                |              | 
|                              | Item 2.        | Managements Discussion and Analysis of Financial Condition and Results of Operations          | 11           | 
|                              |                |                                                                                                |              | 
|                              | Item 3.        | Quantitative and Qualitative Disclosures About Market Risk                                     | 17           | 
|                              |                |                                                                                                |              | 
|                              | Item 4.        | Controls and Procedures                                                                        | 18           | 
|                              |                |                                                                                                |              | 
|Part II. Other Information    |                |                                                                                               
|                              |                |                                                                                                |              | 
|                              | Item 1.        | Legal Proceedings                                                                              | 19           | 
|                              |                |                                                                                                |              | 
|                              | Item 1A.       | Risk Factors                                                                                   | 19           | 
|                              |                |                                                                                                |              | 
|                              | Item 2.        | Unregistered Sales of Equity Securities and Use of Proceeds                                    | 19           | 
|                              |                |                                                                                                |              | 
|                              | Item 3.        | Defaults Upon Senior Securities                                                                | 19           | 
|                              |                |                                                                                                |              | 
|                              | Item 4.        | Reserved                                                                                       | 19           | 
|                              |                |                                                                                                |              | 
|                              | Item 5.        | Other Information                                                                              | 19           | 
|                              |                |                                                                                                |              | 
|                              | Item 6.        | Exhibits                                                                                       | 19           | 
|                              |                |                                                                                                |              | 
|                              | Signature Page | 21                                                                                             |             
|                              |                |                                                                                                |              | 

---



PART I 
FINANCIAL INFORMATION

Item 1. Financial
Statements

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

|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------------- | - | ------- | -
|                                                                                                                                                                 |  | December 31,
 2010 |         | September 30,
 2010 |  
|                                                                                                                                                                 |  |                    |         |                     |  
|ASSETS                                                                                                                                                           |  |                    |         |                     |   |         |  
|Current
 Assets:                                                                                                                                                 |  |                    |         |                     |   |         |  
|Cash and cash equivalents                                                                                                                                        |  | $                  | 1,539   |                     | $ | 3,016   |  
|Trade accounts receivable, net                                                                                                                                   |  |                    | 8,717   |                     |   | 8,854   |  
|Other accounts receivable                                                                                                                                        |  |                    | 429     |                     |   | 599     |  
|Inventories                                                                                                                                                      |  |                    | 8,161   |                     |   | 7,512   |  
|Deferred income taxes                                                                                                                                            |  |                    | 927     |                     |   | 927     |  
|Prepaid expenses and other current assets                                                                                                                        |  |                    | 991     |                     |   | 341     |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|Total current assets                                                                                                                                             |  |                    | 20,764  |                     |   | 21,249  |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|Property,
 plant and equipment, net                                                                                                                              |  |                    | 9,349   |                     |   | 9,025   |  
|Deferred
 income taxes                                                                                                                                           |  |                    | 3,553   |                     |   | 3,493   |  
|Other
 assets, net                                                                                                                                               |  |                    | 376     |                     |   | 438     |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|Total assets                                                                                                                                                     |  | $                  | 34,042  |                     | $ | 34,205  |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                             |  |                    |         |                     |   |         |  
|Current
 Liabilities:                                                                                                                                            |  |                    |         |                     |   |         |  
|Accounts payable                                                                                                                                                 |  | $                  | 4,113   |                     | $ | 4,593   |  
|Accrued expenses                                                                                                                                                 |  |                    | 4,960   |                     |   | 5,698   |  
|Current portion of long-term debt                                                                                                                                |  |                    | 250     |                     |   |        |  
|Current portion of employee benefit
 obligations                                                                                                                 |  |                    | 212     |                     |   | 212     |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|Total current liabilities                                                                                                                                        |  |                    | 9,535   |                     |   | 10,503  |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|Long-term
 Liabilities:                                                                                                                                          |  |                    |         |                     |   |         |  
|Employee benefit obligations                                                                                                                                     |  |                    | 8,611   |                     |   | 8,694   |  
|Other long-term liabilities                                                                                                                                      |  |                    | 249     |                     |   | 244     |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|Commitments
 and contingencies                                                                                                                                   |  |                    |         |                     |   |         |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|Stockholders
 Equity:                                                                                                                                           |  |                    |         |                     |   |         |  
|Preferred Stock ($.01 par value, 50,000,000
 authorized) Series C (No shares were issued and outstanding at December 31,
 2010 and September 30, 2010)           |  |                    |        |                     |   |        |  
|Common stock ($.01 par value, 12,500,000
 authorized; 7,292,944 and 7,289,745 issued and outstanding at December 31,
 2010 and September 30, 2010, respectively) |  |                    | 73      |                     |   | 73      |  
|Additional paid-in capital                                                                                                                                       |  |                    | 37,818  |                     |   | 37,623  |  
|Accumulated deficit                                                                                                                                              |  |                    | (12,033 | )                   |   | (12,677 | )
|Treasury stock (332,593 shares at December
 31, 2010 and September 30, 2010)                                                                                     |  |                    | (2,734  | )                   |   | (2,734) |  
|Accumulated other comprehensive loss                                                                                                                             |  |                    | (7,477  | )                   |   | (7,521  | )
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|Total stockholders equity                                                                                                                                       |  |                    | 15,647  |                     |   | 14,764  |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  
|Total liabilities and stockholders equity                                                                                                                       |  | $                  | 34,042  |                     | $ | 34,205  |  
|                                                                                                                                                                 |  |                    |         |                     |   |         |  

See accompanying notes to Unaudited Condensed
Consolidated Financial Statements.

1

---



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

|                                                                 |  |                                  |           |      |   |           |  
|---------------------------------------------------------------- |  | -------------------------------- | --------- | ---- | - | --------- | -
|                                                                 |  | Three Months Ended
 December 31, |          
|                                                                 |  |                                  |          
|                                                                 |  | 2010                             |           | 2009 |  
|                                                                 |  |                                  |           |      |  
|Net sales                                                        |  | $                                | 13,550    |      | $ | 11,709    |  
|Cost of
 sales                                                   |  |                                  | 9,269     |      |   | 8,123     |  
|                                                                 |  |                                  |           |      |   |           |  
|                                                                 |  |                                  |           |      |   |           |  
|Gross profit                                                     |  |                                  | 4,281     |      |   | 3,586     |  
|                                                                 |  |                                  |           |      |   |           |  
|Operating
 expenses:                                             |  |                                  |           |      |   |           |  
|Research and development                                         |  |                                  | 1,184     |      |   | 1,056     |  
|Selling                                                          |  |                                  | 671       |      |   | 658       |  
|Administration                                                   |  |                                  | 1,547     |      |   | 1,345     |  
|                                                                 |  |                                  |           |      |   |           |  
|Total operating expenses                                         |  |                                  | 3,402     |      |   | 3,059     |  
|                                                                 |  |                                  |           |      |   |           |  
|Operating
 income                                                |  |                                  | 879       |      |   | 527       |  
|                                                                 |  |                                  |           |      |   |           |  
|Other
 (income) expenses:                                        |  |                                  |           |      |   |           |  
|Interest income                                                  |  |                                  | (1        | )    |   | (4        | )
|Interest expense                                                 |  |                                  | 9         |      |   | 5         |  
|Other expense, net                                               |  |                                  | 38        |      |   | 7         |  
|                                                                 |  |                                  |           |      |   |           |  
|Total other expenses                                             |  |                                  | 46        |      |   | 8         |  
|                                                                 |  |                                  |           |      |   |           |  
|Income
 before income taxes                                      |  |                                  | 833       |      |   | 519       |  
|Income tax
 expense                                              |  |                                  | 189       |      |   | 123       |  
|                                                                 |  |                                  |           |      |   |           |  
|                                                                 |  |                                  |           |      |   |           |  
|Net income                                                       |  | $                                | 644       |      | $ | 396       |  
|                                                                 |  |                                  |           |      |   |           |  
|                                                                 |  |                                  |           |      |   |           |  
|Net income
 per common share  basic                             |  | $                                | 0.09      |      | $ | 0.05      |  
|                                                                 |  |                                  |           |      |   |           |  
|Weighted
 average shares used in per share calculation  basic   |  |                                  | 7,290,122 |      |   | 7,271,065 |  
|                                                                 |  |                                  |           |      |   |           |  
|                                                                 |  |                                  |           |      |   |           |  
|Net income
 per common share  diluted                           |  | $                                | 0.09      |      | $ | 0.05      |  
|                                                                 |  |                                  |           |      |   |           |  
|Weighted
 average shares used in per share calculation  diluted |  |                                  | 7,436,184 |      |   | 7,375,680 |  
|                                                                 |  |                                  |           |      |   |           |  

See accompanying notes to Unaudited Condensed
Consolidated Financial Statements.

2

---



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

|                                                                                             |  |                                  |        |      |   |       |  
|-------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ---- | - | ----- | -
|                                                                                             |  | Three Months Ended
 December 31, |       
|                                                                                             |  |                                  |       
|                                                                                             |  | 2010                             |        | 2009 |  
|                                                                                             |  |                                  |        |      |  
|Cash flows
 from operating activities:                                                       |  |                                  |        |      |   |       |  
|Net income                                                                                   |  | $                                | 644    |      | $ | 396   |  
|Adjustments to reconcile net income to net
 cash provided by (used in) operating activities: |  |                                  |        |      |   |       |  
|Depreciation and amortization                                                                |  |                                  | 560    |      |   | 524   |  
|Deferred income taxes                                                                        |  |                                  | (59    | )    |   | (14   | )
|Stock based compensation                                                                     |  |                                  | 169    |      |   | 138   |  
|Changes in operating assets and liabilities                                                  |  |                                  |        |      |   |       |  
|Receivables, net                                                                             |  |                                  | 307    |      |   | (250  | )
|Inventories                                                                                  |  |                                  | (649   | )    |   | (93   | )
|Prepaid expenses and other current assets                                                    |  |                                  | (650   | )    |   | (548  | )
|Accounts payable and accrued expenses                                                        |  |                                  | (1,257 | )    |   | (63   | )
|Other                                                                                        |  |                                  | 18     |      |   | 70    |  
|                                                                                             |  |                                  |        |      |   |       |  
|Net cash provided by (used in) operating
 activities                                         |  |                                  | (917   | )    |   | 160   |  
|                                                                                             |  |                                  |        |      |   |       |  
|                                                                                             |  |                                  |        |      |   |       |  
|Cash flows from investing activities:                                                        |  |                                  |        |      |   |       |  
|Purchases of property, plant and equipment                                                   |  |                                  | (836   | )    |   | (372  | )
|                                                                                             |  |                                  |        |      |   |       |  
|Net cash used in investing activities                                                        |  |                                  | (836   | )    |   | (372  | )
|                                                                                             |  |                                  |        |      |   |       |  
|                                                                                             |  |                                  |        |      |   |       |  
|Cash flows from financing activities:                                                        |  |                                  |        |      |   |       |  
|Net borrowings on revolving loan facility                                                    |  |                                  | 250    |      |   |      |  
|Net proceeds from exercise of stock options                                                  |  |                                  | 26     |      |   | 12    |  
|                                                                                             |  |                                  |        |      |   |       |  
|Net cash provided by financing activities                                                    |  |                                  | 276    |      |   | 12    |  
|                                                                                             |  |                                  |        |      |   |       |  
|                                                                                             |  |                                  |        |      |   |       |  
|Net decrease in cash and cash equivalents                                                    |  |                                  | (1,477 | )    |   | (200  | )
|Cash and cash equivalents at beginning of
 period                                            |  |                                  | 3,016  |      |   | 9,245 |  
|                                                                                             |  |                                  |        |      |   |       |  
|                                                                                             |  |                                  |        |      |   |       |  
|Cash and cash equivalents at end of period                                                   |  | $                                | 1,539  |      | $ | 9,045 |  
|                                                                                             |  |                                  |        |      |   |       |  
|                                                                                             |  |                                  |        |      |   |       |  
|Supplemental disclosure of cash flow
 information:                                           |  |                                  |        |      |   |       |  
|Income taxes paid                                                                            |  | $                                | 467    |      | $ | 42    |  
|                                                                                             |  |                                  |        |      |   |       |  

See accompanying notes to Unaudited Condensed Consolidated Financial
Statements.

3

---



Williams Controls, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
Three Months ended December 31, 2010 and 2009
(Dollars in thousands, except share and per share amounts)
(Unaudited)

Note 1.
Organization and Basis of Presentation

Williams
Controls, Inc., including its wholly-owned subsidiaries as follows, is
hereinafter referred to as the Company, we, our, or us.

The
following are the Companys active wholly-owned subsidiaries: Williams Controls
Industries, Inc.; Williams (Suzhou) Controls Co. Ltd.; Williams Controls Europe
GmbH; and Williams Controls India Private Limited.

In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (which include normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America (GAAP) have been condensed or omitted pursuant to the rules and
regulations of the United States Securities and Exchange Commission (SEC).
These condensed consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the year ended September 30, 2010. The
results of operations for the three months ended December 31, 2010 are not
necessarily indicative of the results to be expected for the entire fiscal
year.

The
preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions, based upon all know
facts and circumstances, that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
issuance of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting periods. Management makes these
estimates using the best information available at the time the estimates are
made; however, actual results may differ materially from these estimates.
Estimates are used in accounting for, among other things, allowance for
doubtful accounts, excess and obsolete inventory, useful lives for depreciation
and amortization, future cash flows associated with impairment testing for
long-lived assets, pension and post-retirement medical benefit obligations,
product warranty, share-based compensation expense, income taxes and
commitments and contingencies.

The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.

Note 2.
Recently Adopted Accounting Standards

In
April 2010, the FASB issued authoritative guidance which established criteria
for a milestone to be considered substantive and allows revenue recognition
when the milestone is achieved in research and development arrangements. In
addition, this guidance requires disclosure of certain information with respect
to arrangements that contain milestones. This guidance was effective for the
Company prospectively beginning October 1, 2010. The Company evaluated this
guidance and does not expect its adoption to have a significant impact on the
Companys consolidated financial statements.

In
December 2008, the FASB issued authoritative guidance requiring employers
to provide additional disclosures about plan assets of a defined benefit
pension or other post-retirement plan. These disclosures include information
detailing investment policies and strategies, the major categories of plan
assets, the inputs and valuation techniques used to measure the fair value of
plan assets and an understanding of significant concentrations of risk within
plan assets. This guidance was effective for the Company beginning in fiscal
2010 (October 1, 2009). This guidance was not required to be applied to earlier
periods that are presented for comparative purposes and the adoption of this
guidance did not have a material impact on the Companys consolidated financial
statements.

Note 3.
Cash and Cash Equivalents

Cash
and cash equivalents include highly liquid investments with original maturities
of three months or less. At December 31, 2010, cash and cash equivalents
primarily consisted of cash deposits held in one major U.S. financial institution.
At December 31, 2010, approximately 23% of the Companys cash and cash
equivalents were held with one major financial institution in the United States
with the remainder held in foreign banks or foreign currency denominated
accounts. The Company maintains cash balances in bank accounts that normally
exceed FDIC insured limits. As of December 31, 2010, cash and cash equivalents
held in the United States exceeded federally insured limits by approximately
$100. The Company has not experienced any losses related to this cash
concentration.

4

---



Note 4.
Trade Accounts Receivable

Trade
accounts receivable are presented net of an allowance for doubtful accounts of
$154 and $150 at December 31, 2010 and September 30, 2010, respectively.
Activity related to the allowance for doubtful accounts for the three months
ended December 31, 2010 and the full year ended September 30, 2010 consisted of
the following:

|                                             |  |                    |     |                     |   |      |  
|-------------------------------------------- |  | ------------------ | --- | ------------------- | - | ---- | -
|                                             |  | December 31,
 2010 |     | September 30,
 2010 |  
|                                             |  |                    |     |                     |  
|Beginning balance                            |  | $                  | 150 |                     | $ | 246  |  
|Charges to bad debt expense                  |  |                    | 19  |                     |   | 69   |  
|Write-offs, recoveries and
 adjustments, net |  |                    | (15 | )                   |   | (165 | )
|                                             |  |                    |     |                     |   |      |  
|Ending balance                               |  | $                  | 154 |                     | $ | 150  |  
|                                             |  |                    |     |                     |   |      |  

Note 5.
Inventories

Inventories
consist of the following:

|                 |  |                    |       |                     |   |       | 
|---------------- |  | ------------------ | ----- | ------------------- | - | ----- | 
|                 |  | December 31,
 2010 |       | September 30,
 2010 |  
|                 |  |                    |       |                     |  
|Raw
 materials   |  | $                  | 6,039 |                     | $ | 5,767 | 
|Work in
 process |  |                    | 86    |                     |   | 55    | 
|Finished
 goods  |  |                    | 2,036 |                     |   | 1,690 | 
|                 |  |                    |       |                     |   |       | 
|                 |  | $                  | 8,161 |                     | $ | 7,512 | 
|                 |  |                    |       |                     |   |       | 

Note 6.
Accrued Expenses

Accrued expenses consist of the following:

|                                   |  |                    |       |                     |   |       | 
|---------------------------------- |  | ------------------ | ----- | ------------------- | - | ----- | 
|                                   |  | December 31,
 2010 |       | September 30,
 2010 |  
|                                   |  |                    |       |                     |  
|Environmental
 liability           |  | $                  | 893   |                     | $ | 900   | 
|Accrued
 product warranty          |  |                    | 1,160 |                     |   | 1,578 | 
|Accrued
 compensation and benefits |  |                    | 1,833 |                     |   | 1,962 | 
|Income tax
 payable                |  |                    | 305   |                     |   | 522   | 
|Other                              |  |                    | 769   |                     |   | 736   | 
|                                   |  |                    |       |                     |   |       | 
|                                   |  | $                  | 4,960 |                     | $ | 5,698 | 
|                                   |  |                    |       |                     |   |       | 

For
further discussion related to the Companys environmental liability and product
warranty liability, refer to Notes 14 and 7, respectively.

Note 7.
Product Warranties

The
Company establishes a product warranty liability based on a percentage of
product sales. The liability 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 condensed consolidated balance sheets.
Warranty is limited to a specified time period, mileage or hours of use, and
varies by product, application and customer. The Company has recorded a
liability, which in the opinion of management, is adequate to cover such
warranty costs. Warranty payments can vary significantly from quarter to
quarter and year to year depending on the timing of the settlement of warranty
claims with various customers. Following is a reconciliation of the changes in
the Companys warranty liability for the three months ended December 31, 2010
and the year ended September 30, 2010.

5

---



|                    |  |                     |       |                      |   |       |  
|------------------- |  | ------------------- | ----- | -------------------- | - | ----- | -
|                    |  | December 31, 
 2010 |       | September 30, 
 2010 |  
|                    |  |                     |       |                      |  
|Beginning
 balance  |  | $                   | 1,578 |                      | $ | 751   |  
|                   
|Payments            |  |                     | (603  | )                    |   | (557  | )
|Additional accruals |  |                     | 185   |                      |   | 1,384 |  
|                    |  |                     |       |                      |   |       |  
|                   
|Ending
 balance     |  | $                   | 1,160 |                      | $ | 1,578 |  
|                    |  |                     |       |                      |   |       |  

The
increase in payments during the three months ended December 31, 2010 primarily
relates to warranty claim payments related to one customer, which were accrued
during fiscal 2010.

Note 8.
Debt

In
June 2010, the Company entered into a revolving loan facility with U.S. Bank,
which expires on June 30, 2012. As of December 31, 2010, our balance on the
revolving loan facility is $250.

The
revolving loan facility provides for $8,000 in borrowing capacity and is secured
by substantially all the assets of the Company. Borrowings under the revolving
loan facility are subject to a borrowing base equal to 75% of eligible accounts
receivables and 50% of eligible inventories. Interest rates under the new
agreement are based on the election of the Company of either a LIBOR rate or at
Prime rate. Under the LIBOR rate option, the revolving loan facility will bear
interest at the LIBOR rate plus 2.25% per annum for borrowings under the
revolving loan facility. Fees under the loan agreement include an unused line
fee of 0.15% per annum on the unused portion of the revolving loan facility.

The Company had available under its revolving
credit facility $5,778 at December 31, 2010.

Note 9.
Comprehensive Income

The
following table summarizes the components of comprehensive income:

|                                   |  |                                   |     |      |   |     | 
|---------------------------------- |  | --------------------------------- | --- | ---- | - | --- | 
|                                   |  | Three Months 
 Ended December 31, |    
|                                   |  |                                   |    
|                                   |  | 2010                              |     | 2009 |  
|                                   |  |                                   |     |      |  
|Net income                         |  | $                                 | 644 |      | $ | 396 | 
|Translation
 adjustment            |  |                                   | 43  |      |   |    | 
|Change of
 unrealized gain or loss |  |                                   |    |      |   | 97  | 
|                                   |  |                                   |     |      |   |     | 
|Comprehensive
 income              |  | $                                 | 687 |      | $ | 493 | 
|                                   |  |                                   |     |      |   |     | 

Note 10.
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:

|                                                                  |  |                                      |     |                                      |  |                      |  |        |      |        |   |                      |  |  |           |  |   |      | 
|----------------------------------------------------------------- |  | ------------------------------------ | --- | ------------------------------------ |  | -------------------- |  | ------ | ---- | ------ | - | -------------------- |  |  | --------- |  | - | ---- | 
|                                                                  |  | Three
 Months EndedDecember 31, 2010 |     | Three
 Months EndedDecember 31, 2009 | 
|                                                                  |  |                                      |     |                                      | 
|                                                                  |  | Income                               |     | Shares                               |  | Per
 
 Share
 Amount |  | Income |      | Shares |   | Per
 
 Share
 Amount | 
|                                                                  |  |                                      |     |                                      |  |                      |  |        |      |        |   |                      | 
|                                                                 
|Basic EPS                                                        |  | $                                    | 644 |                                      |  | 7,290,122            |  | $      | 0.09 |        | $ | 396                  |  |  | 7,271,065 |  | $ | 0.05 | 
|                                                                  |  |                                      |     |                                      |  |                      |  |        |      |        |   |                      |  |  |           |  |   |      | 
|Effect of dilutive securities 
 Stock options & restricted stock |  |                                      |     |                                      |  | 146,062              |  |        |      |        |   |                      |  |  | 104,615   |  |   |      | 
|                                                                  |  |                                      |     |                                      |  |                      |  |        |      |        |   |                      |  |  |           |  |   |      | 
|                                                                 
|Diluted EPS                                                      |  | $                                    | 644 |                                      |  | 7,436,184            |  | $      | 0.09 |        | $ | 396                  |  |  | 7,375,680 |  | $ | 0.05 | 
|                                                                  |  |                                      |     |                                      |  |                      |  |        |      |        |   |                      |  |  |           |  |   |      | 

6

---



For
the three months ended December 31, 2010, the Company had options and
restricted stock covering 240,322 shares that were not considered in the
dilutive EPS calculation since they would have been antidilutive. For the three
months ended December 31, 2009, the Company had options covering 364,784 shares
not considered in the dilutive EPS calculation since they would have been
antidilutive.

Note 11.
Fair Value Measurement

Financial
assets and liabilities recorded at fair value in the consolidated balance sheet
are categorized based upon a fair value hierarchy established by U.S. GAAP,
which prioritizes the inputs used to measure fair value into the following
levels:

| |           |                                                                                                                                                
| | --------- | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Level 1  | observable
 inputs such as quoted prices in active markets for identical assets or
 liabilities;                                               
| |           |                                                                                                                                                
| | Level 2  | inputs,
 other than the quoted market prices in active markets, which are observable,
 either directly or indirectly; and                      
| |           |                                                                                                                                                
| | Level 3  | unobservable
 inputs for which there is little or no market data available, which require
 the reporting entity to develop its own assumptions.

The
following table presents information about financial assets and liabilities
measured at fair value on a recurring basis as of December 31, 2010:

|                                       |  |                                     |       |         |   |         |  |         |   |  |   |   | 
|-------------------------------------- |  | ----------------------------------- | ----- | ------- | - | ------- |  | ------- | - |  | - | - | 
|                                       |  | Fair Value as of
 December 31, 2010 |       | Level 1 |   | Level 2 |  | Level 3 |  
|                                       |  |                                     |       |         |   |         |  |         |  
|                                      
|Cash and
 cash equivalents             |  | $                                   | 1,539 |         | $ | 1,539   |  | $       |  |  | $ |  | 
|                                       |  |                                     |       |         |   |         |  |         |   |  |   |   | 
|Total financial assets and liabilities |  | $                                   | 1,539 |         | $ | 1,539   |  | $       |  |  | $ |  | 
|                                       |  |                                     |       |         |   |         |  |         |   |  |   |   | 

There
were no assets and liabilities measured at fair value on a nonrecurring basis
as of December 31, 2010.

Note 12. Employee Benefit Plans

Pension Plans

Disclosures
regarding the components of net periodic benefit cost and contributions of
pension plans are required for interim financial statement purposes and are
included below:

Components of Net Periodic Benefit Cost:

|                                    |  |                                   |     |                                   |   |      |   |      |     |   |   |     |  
|----------------------------------- |  | --------------------------------- | --- | --------------------------------- | - | ---- | - | ---- | --- | - | - | --- | -
|                                    |  | Salaried Employees Plan           |     | Hourly Employees Plan             |  
|                                    |  |                                   |     |                                   |  
|                                    |  | Three Months Ended 
 December 31, |     | Three Months Ended 
 December 31, |  
|                                    |  |                                   |     |                                   |  
|                                    |  | 2010                              |     | 2009                              |   | 2010 |   | 2009 |    
|                                    |  |                                   |     |                                   |   |      |   |      |    
|Service cost                        |  | $                                 |    |                                   | $ |     |   | $    | 13  |   | $ | 12  |  
|Interest
 cost                      |  |                                   | 66  |                                   |   | 70   |   |      | 120 |   |   | 122 |  
|Expected
 return on plan assets     |  |                                   | (51 | )                                 |   | (55  | ) |      | (81 | ) |   | (87 | )
|Amortization
 of prior service cost |  |                                   |    |                                   |   |     |   |      | 3   |   |   | 3   |  
|Amortization
 of loss               |  |                                   | 34  |                                   |   | 33   |   |      | 50  |   |   | 45  |  
|                                    |  |                                   |     |                                   |   |      |   |      |     |   |   |     |  
|Net periodic
 benefit cost          |  | $                                 | 49  |                                   | $ | 48   |   | $    | 105 |   | $ | 95  |  
|                                    |  |                                   |     |                                   |   |      |   |      |     |   |   |     |  

During
the three months ended December 31, 2010 and 2009, the Company contributed $146
and $71, respectively, to the pension plans. The Company expects total
contributions to its pension plans for the remainder of fiscal 2011 to be $906.

7

---



Post
Retirement Medical Plan

Disclosures
regarding the components of net periodic benefit cost and contributions of the
Companys post-retirement medical plan are required for interim financial
statements and are included below. The Company did not make any contributions
to the post-retirement medical plan for the three months ended December 31,
2010 and 2009.

Components
of Net Periodic Benefit Cost:

|                           |  |                                                         |     |      |   |     |  
|-------------------------- |  | ------------------------------------------------------- | --- | ---- | - | --- | -
|                           |  | Post-Retirement Plan
 Three Months Ended 
 December 31, |    
|                           |  |                                                         |    
|                           |  | 2010                                                    |     | 2009 |  
|                           |  |                                                         |     |      |  
|Service cost               |  | $                                                       |    |      | $ |    |  
|Interest
 cost             |  |                                                         | 31  |      |   | 37  |  
|Amortization               |  |                                                         | (27 | )    |   | (25 | )
|                           |  |                                                         |     |      |   |     |  
|Net periodic
 benefit cost |  | $                                                       | 4   |      | $ | 12  |  
|                           |  |                                                         |     |      |   |     |  

Note 13. Income Taxes

The
Companys unrecognized tax benefits remained unchanged during the three months
ended December 31, 2010. The Company believes that it is reasonably possible
that unrecognized tax benefits could decrease by $69 within the 12 months of
this reporting date.

The
Companys subsidiary in China is entitled to a five-year tax holiday, pursuant
to which it was exempted from paying the enterprise income tax for calendar
year 2007, the year in which it first had positive earnings, and calendar year
2008. Additionally, the Company is eligible for reduced enterprise income tax
rates of 10%, 11% and 12% for the calendar years 2009, 2010 and 2011,
respectively. The income tax benefit of the tax holiday for the
three months ended December 31, 2010 and 2009 were $46 and $85, respectively. The per share effect of the tax holiday
on a fully diluted basis for the same periods was $0.01.

Note 14. Commitments and Contingencies

The
Company and its subsidiaries are parties to various pending judicial and
administrative proceedings arising in the ordinary course of business. The
Companys 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 the Companys insurance coverage, and the
Companys established liabilities. While the outcome of the pending proceedings
cannot be predicted with certainty, based on its review, the Company believes
that any unrecorded liability that may result is not more than likely to have a
material effect on the Companys liquidity, financial condition or results of
operations.

The
soil and groundwater at the Companys Portland, Oregon facility contains
certain contaminants, which were deposited from approximately 1968 through
1995. Some of this contamination has migrated offsite to neighboring
properties. The Company has retained an environmental consulting firm to
investigate the extent of the contamination and to determine what remediation
will be required and the associated costs. During fiscal 2004, the Company
entered into the Oregon Department of Environmental Qualitys voluntary
clean-up program. As of December 31, 2010, the total liability recorded is $893
and is recorded in accrued expenses in the accompanying condensed consolidated
balance sheet.

Note 15.
Share Based Compensation

The
Company currently has two qualified stock plans: the 2010 Restated Stock Option
Plan (the Employee Plan) and the 2010 Restated Formula Stock Option Plan for
non-employee Directors (the Formula Plan). Under the terms of the Employee
Plan, the Company may grant incentive stock options, non-qualified options,
both of which must have an exercise price of not less than the fair market
value on the date of grant, or restricted stock. Under the terms of the Formula
plan, non-employee directors are each automatically granted 1,666 options at a
price equal to the market value on the date of grant, which is the date of the
Annual Meeting of Stockholders each year.

8

---



Stock Options

Information
regarding outstanding stock options as of December 31, 2010 is as follows:

|                                   |  |                  |         |                                     |   |                                             |  |                            |           |  |   |       | 
|---------------------------------- |  | ---------------- | ------- | ----------------------------------- | - | ------------------------------------------- |  | -------------------------- | --------- |  | - | ----- | 
|                                   |  | Number of Shares |         | Weighted 
 Average 
 Exercise Price |   | Weighted Average Remaining Contractual Term |  | Aggregate
 Intrinsic Value |          
|                                   |  |                  |         |                                     |   |                                             |  |                            |          
|Outstanding
 at September 30, 2010 |  |                  | 874,777 |                                     | $ | 9.17                                        |  |                            | 6.5 years |  | $ | 1,342 | 
|                                   |  |                  |         |                                     |   |                                             |  |                            |           |  |   |       | 
|Exercised                          |  |                  | (3,199  | )                                   |   | 7.97                                        |  |                            |           |  |   |       | 
|Cancelled/Forfeited                |  |                  | (11,584 | )                                   |   | 11.38                                       |  |                            |           |  |   |       | 
|                                   |  |                  |         |                                     |   |                                             |  |                            |           |  |   |       | 
|Outstanding
 at December 31, 2010  |  |                  | 859,994 |                                     | $ | 9.15                                        |  |                            | 6.2 years |  | $ | 2,297 | 
|                                   |  |                  |         |                                     |   |                                             |  |                            |           |  |   |       | 
|Exercisable
 at December 31, 2010  |  |                  | 559,251 |                                     | $ | 8.57                                        |  |                            | 4.9 years |  | $ | 1,795 | 
|                                   |  |                  |         |                                     |   |                                             |  |                            |           |  |   |       | 

The
aggregate intrinsic value in the table above represents pre-tax intrinsic value
that would have been realized if all options had been exercised on the last
business day of the period indicated, based on the Companys closing stock
price on that day. The aggregate intrinsic value of options outstanding and
options exercisable at December 31, 2009 was $769 and $749, respectively. The
intrinsic value of all stock options exercised during the three months ended
December 31, 2010 was $8 and the cash received from these exercises was $26.
The intrinsic value of all stock options exercised during the three months
ended December 31, 2009 was $8 and the cash received from these exercises was
$12.

The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants issued during the three months ended December 31,
2010 and 2009:

|                                                 |  |                                  |   |      |   |           |  
|------------------------------------------------ |  | -------------------------------- | - | ---- | - | --------- | -
|                                                 |  | Three Months Ended
 December 31, |  
|                                                 |  |                                  |  
|                                                 |  | 2010(1)                          |   | 2009 |  
|                                                 |  |                                  |   |      |  
|Expected
 term                                   |  |                                  |  |      |   | 6.5 years |  
|Expected
 volatility                             |  |                                  |  |      |   | 47        | %
|Risk-free
 interest rate                         |  |                                  |  |      |   | 2.81      | %
|Expected
 dividend yield                         |  |                                  |  |      |   | 0         | %
|Estimated
 average fair value per option granted |  |                                  |  |      | $ | 4.25      |  

| |     |                                                                                      
| | --- | -------------------------------------------------------------------------------------
| | (1) | There were
 no stock options granted during the three months ended December 31, 2010.

Restricted
Stock

Information
regarding outstanding restricted stock awards as of December 31, 2010 is as
follows:

|                                   |  |        |        |                                        |   |       | 
|---------------------------------- |  | ------ | ------ | -------------------------------------- | - | ----- | 
|                                   |  | Shares |        | Weighted Average Grant Date Fair Value |  
|                                   |  |        |        |                                        |  
|                                  
|Outstanding
 at September 30, 2010 |  |        |       |                                        | $ |      | 
|Granted                            |  |        | 30,200 |                                        |   | 10.75 | 
|                                   |  |        |        |                                        |   |       | 
|Outstanding
 at December 31, 2010  |  |        | 30,200 |                                        | $ | 10.75 | 
|                                   |  |        |        |                                        |   |       | 
|Vested at
 December 31, 2010       |  |        |       |                                        | $ |      | 
|                                   |  |        |        |                                        |   |       | 

During
the three months ended December 31, 2010, the Company issued 30,200 restricted
shares to employees under the Employee Plan. These restricted shares vest over
a four year period from the date of grant. No restricted stock was issued
during the three months ended December 31, 2009.

9

---



Expense Information

The
Companys share-based compensation expenses were recorded in the following
expense categories for the three months ended December 31, 2010 and 2009:

|                                                     |  |                                   |     |      |   |     | 
|---------------------------------------------------- |  | --------------------------------- | --- | ---- | - | --- | 
|                                                     |  | Three Months 
 Ended December 31, |    
|                                                     |  |                                   |    
|                                                     |  | 2010                              |     | 2009 |  
|                                                     |  |                                   |     |      |  
|Cost of sales                                        |  | $                                 | 34  |      | $ | 28  | 
|Research and development                             |  |                                   | 33  |      |   | 24  | 
|Selling                                              |  |                                   | 21  |      |   | 16  | 
|Administration                                       |  |                                   | 81  |      |   | 70  | 
|                                                     |  |                                   |     |      |   |     | 
|Total share-based compensation expense               |  | $                                 | 169 |      | $ | 138 | 
|                                                     |  |                                   |     |      |   |     | 
|                                                     |  |                                   |     |      |   |     | 
|Total share-based compensation expense (net
 of tax) |  | $                                 | 148 |      | $ | 125 | 
|                                                     |  |                                   |     |      |   |     | 

As
of December 31, 2010 there was $1,391 of total unrecognized compensation costs
related to non-vested stock options and $274 related to non-vested restricted
stock. The unrecognized compensation costs are expected to be recognized over a
weighted average period of 2.9 years for non-vested stock options and 3.9 years
for non-vested restricted stock.

Note 16.
Enterprise-wide Information

During
the three months ended December 31, 2010 and 2009, the Company operated in two
geographic reportable regions as shown in the table below.

|                               |  |                                   |        |      |   |        |  
|------------------------------ |  | --------------------------------- | ------ | ---- | - | ------ | -
|                               |  | Three Months Ended 
 December 31, |       
|                               |  |                                   |       
|                               |  | 2010                              |        | 2009 |  
|                               |  |                                   |        |      |  
|Revenue 
 External Customers: |  |                                   |        |      |   |        |  
|United States                  |  | $                                 | 12,695 |      | $ | 11,145 |  
|China                          |  |                                   | 855    |      |   | 564    |  
|                               |  |                                   |        |      |   |        |  
|                               |  | $                                 | 13,550 |      | $ | 11,709 |  
|                               |  |                                   |        |      |   |        |  
|Revenue 
 Intersegments:      |  |                                   |        |      |   |        |  
|United States                  |  | $                                 | 190    |      | $ | 238    |  
|China                          |  |                                   | 3,844  |      |   | 2,617  |  
|Other                          |  |                                   | 130    |      |   | 190    |  
|Eliminations                   |  |                                   | (4,164 | )    |   | (3,045 | )
|                               |  |                                   |        |      |   |        |  
|                               |  | $                                 |       |      | $ |       |  
|                               |  |                                   |        |      |   |        |  
|Income
 before income taxes:   |  |                                   |        |      |   |        |  
|United States                  |  | $                                 | 287    |      | $ | 371    |  
|China                          |  |                                   | 665    |      |   | 241    |  
|Other                          |  |                                   | (119   | )    |   | (93    | )
|                               |  |                                   |        |      |   |        |  
|                               |  | $                                 | 833    |      | $ | 519    |  
|                               |  |                                   |        |      |   |        |  

10

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

Forward-Looking Statements

This
quarterly report on Form 10-Q contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements include all statements other than those that
expressly connote an assertion of historical fact. Among others, this report
includes forward looking statements that describe our plans and intentions
regarding future courses of action and the possible outcomes of those
intentions, and that set forth our expectations regarding our prospective
financial condition, results of operations, and cash flows. Forward-looking
statements can sometimes be identified by the use of forward-looking
terminology, such as may, will, should, expect, anticipate,
estimate, continue, plans, and intends. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, such
forward-looking statements are subject to risks and uncertainties that could
cause us to deviate from our current plans, and could cause our actual results
to differ materially from those indicated by the forward-looking statements.
Some of the known factors that could cause us to deviate from current plans or
could cause our results to fall short of expectations include: our ability to
maintain positive relationships with key customers; the concentration of our
sales revenues among a limited number of large customers; our status as a
component manufacturer and the resulting impact on our revenues of demand for
vehicles in which our products are installed; the effect of products liability
lawsuits that directly affect us and that indirectly impact us because of their
effect on the automotive and equipment industries generally; the impact of
foreign currency exchange rates on our gross income; the impact of federal
monetary and trade policies that impact the market for our products; and the
status of our relationships with our employees and organized labor force. These
risks and uncertainties are beyond our control and, in many cases; we cannot
predict the risks and uncertainties that could cause our actual results to
differ materially from those indicated by the forward-looking statements. Some
of the factors that may cause our actual results in future periods to differ
materially from those currently expected or desired because of a number of
risks and uncertainties include, but are not limited to, those risks discussed
in the section entitled Risk Factors in our annual report on Form 10-K for
the fiscal year ended September 30, 2010.

The
forward-looking statements are made as of the date hereof, and, except as
otherwise required by law, we cannot undertake to update or revise these
statements.

Overview

We
primarily design, manufacture and sell electronic throttle controls, pneumatic
controls and electronic sensors for heavy trucks, transit buses and off-road
equipment. Electronic throttle controls send a signal proportional to throttle
position to adjust the speed of electronically controlled engines. The use of
electronically controlled engines is influenced primarily by emissions
regulations, because these engines generally produce lower emissions. The
original applications of electronic engines and electronic throttle controls
were in heavy trucks and transit busses in the United States and Europe in the
late 1980s. As a result of the continuing implementation of more stringent
emissions standards worldwide, demand for electronically controlled engines and
electronic throttle control systems is expanding both geographically and into
lower horsepower engines. China, India and Russia are implementing more stringent
emissions standards for heavy trucks and transit busses, which we believe will
increase the penetration of electronic throttle controls worldwide.
Additionally, countries around the world have adopted emissions regulations
that we expect will continue to increase the use of electronic throttle
controls in off-road equipment. We also produce pneumatic controls and
electronic hand controls, which are generally sold to the same customer base as
our electronic throttle controls. These pneumatic products are used for vehicle
control system applications such as power take-offs, or PTOs, and air-control
applications. We believe that the demand for our products will be driven
primarily by worldwide emissions legislation and the economic cycles for heavy trucks,
transit busses and off-road equipment.

As we move
forward in fiscal 2011 and beyond, we plan to continue to work closely with our
existing and potential customers to design and develop new products and adapt
existing products to new applications, and to improve the performance,
reliability and cost-effectiveness of our products.

Critical Accounting
Policies and Estimates

Managements
discussion and analysis of our financial condition and results of operations
are based on our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these condensed consolidated financial
statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, sales, cost of sales and expenses and related disclosure of
contingent assets and liabilities. We evaluate our estimates on an on-going
basis. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value
of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. We believe the following critical accounting policies and the
related judgments and estimates affect the preparation of our condensed
consolidated financial statements.

11

---



Revenue Recognition

Revenue
is recognized at the time of product shipment, which is when title and risk of
loss transfers to customers, and when all of the following have occurred: a
firm sales agreement is in place, pricing is fixed or determinable, and
collection is reasonably assured. Revenues are reported net of estimated
returns, rebates and customer discounts. Discounts and rebates are recorded
during the period they are earned by the customer.

Product Warranty

We provide
a warranty covering defects arising from products sold. The
product warranty liability is based on historical return rates of products and
amounts for significant and specific warranty issues. The warranty is limited
to a specified time period, mileage or hours of use, and varies by product,
application and customer. The Company has recorded a warranty liability, which
in the opinion of management, is adequate to cover such costs. While we believe our estimates are reasonable,
they are subject to change and such change could be material.

Legal

We
are involved in various claims, lawsuits and other proceedings from time to
time. Such litigation involves uncertainty as to possible losses we may
ultimately realize when one or more future events occur or fail to occur. In
connection with such claims and lawsuits, we estimate the probability of losses
based on advice of legal counsel, the outcomes of similar litigation,
legislative development and other factors. Due to the numerous variables
associated with these judgments and assumptions, both the precision and
reliability of the resulting estimates of the related loss contingencies are
subject to substantial uncertainties. We regularly monitor our estimated
exposure to these contingencies and, as additional information becomes known,
may change our estimates significantly. We expense legal expenses related to
claims in the period incurred, including, in the case of expenses subject to
contingencies, in the period in which we determine that it is probable that all
remaining contingencies will be satisfied and the amount of such expenses have
been established with reasonable certainty. A significant change in our
estimates, or a result that materially differs from our estimates, could have a
significant impact on our financial position, results of operations and cash
flows.

Environmental Costs

We
estimate the costs of investigation and remediation for certain soil and
groundwater contaminants at our Portland, Oregon facility. The ultimate costs
to the Company for the investigation, remediation and monitoring of this site
cannot be predicted with certainty due to the often unknown magnitude of the
pollution or the necessary cleanup, the varying costs of alternative cleanup
methods, the amount of time necessary to accomplish such cleanups and the
evolving nature of cleanup technologies and governmental regulations. The
Company has recognized a liability for environmental remediation costs for this
site in an amount that management believes is probable and reasonably
estimable. When the estimate of a probable loss is within a range, the minimum
amount in the range is accrued when no estimate within the range is better than
another. In making these judgments and assumptions, the Company considers,
among other things, the activity to-date at the site and information obtained
through consultation with applicable regulatory authorities and third party
consultants and contractors. The Company regularly monitors its exposure to
environmental loss contingencies. As additional information becomes known, it
is at least reasonably possible that a change in the estimated liability
accrual will occur in the near future.

Pensions
and Post-Retirement Benefit Obligations

Pension and
post-retirement benefit obligations and net period benefit cost are calculated
using actuarial models. The most important assumptions that affect these
computations are the discount rate, expected long-term rate of return on plan
assets, and healthcare cost trend rates. We evaluate these assumptions at least
annually. Other assumptions involve demographic factors such as retirement, mortality and turnover.
These assumptions are evaluated at least annually and are updated to reflect
our experience. Actual results in any given year will often differ from
actuarial assumptions because of economic and other factors.

12

---



Our
discount rate assumption is intended to reflect the rate at which retirement
benefits could be effectively settled based upon the assumed timing of the
benefit payments. To determine our discount rate, we discount the expected
benefit payments using the Principal Pension Discount Yield Curve. The
equivalent level interest rate that produces the same present value of benefits
is then determined. Our assumed rate does not differ significantly from this
benchmark rate. To determine the expected long-term rate of return on pension
plan assets, we consider the current asset allocations and the historical and
expected returns on various categories of plan assets obtained from our
investment portfolio manager. Our post-retirement plan does not contain any
plan assets.

Share Based Compensation Expense

We
measure compensation cost for all outstanding unvested share-based awards, and
awards we grant, modify, repurchase or cancel in the future, at fair value and
recognize compensation over the requisite service period for awards expected to
vest. The estimation of stock awards that will ultimately vest requires
judgment, and to the extent actual results differ from our estimates, such
amounts will be recorded as a cumulative adjustment in the period estimates are
revised. We consider many factors when calculating fair value including
estimated stock price volatility, expected term and expected forfeitures.
Factors considered in estimating forfeitures include the types of awards,
employee class, and historical experience. Actual results may differ
substantially from these estimates.

Income
Taxes

For each
jurisdiction that we operate in, we are required to estimate our annual
effective tax rate together with assessing temporary differences resulting from
differing treatment of items for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are included in our
consolidated balance sheet. We must also assess the likelihood that our
deferred tax assets will be recovered from future taxable income and unless we
believe that recovery is more likely than not, a valuation allowance is
established. Our income tax provision on the consolidated statement of
operations would be impacted by changes in the valuation allowance. This
process is complex and involves significant management judgment in determining
our provision for income taxes, deferred tax assets and liabilities and any valuation
allowances recorded against our net deferred tax assets.

13

---



Results of Operations
Financial Summary
(Dollars in Thousands)

|                               |  |                                  |        |      |   |                    |   |  |      |  
|------------------------------ |  | -------------------------------- | ------ | ---- | - | ------------------ | - |  | ---- | -
|                               |  | Three Months Ended
 December 31, |        |      |   |                   
|                               |  |                                  |        |      |   |                   
|                               |  | 2010                             |        | 2009 |   | Percent
    Change
|                               |  |                                  |        |      |   |                    |  
|Net sales                      |  | $                                | 13,550 |      | $ | 11,709             |   |  | 15.7 | %
|Cost of sales                  |  |                                  | 9,269  |      |   | 8,123              |   |  | 14.1 | %
|                               |  |                                  |        |      |   |                    |   |  |      |  
|                               |  |                                  |        |      |   |                    |   |  |      |  
|Gross profit                   |  |                                  | 4,281  |      |   | 3,586              |   |  | 19.4 | %
|                               |  |                                  |        |      |   |                    |   |  |      |  
|Research and development       |  |                                  | 1,184  |      |   | 1,056              |   |  | 12.1 | %
|Selling                        |  |                                  | 671    |      |   | 658                |   |  | 2.0  | %
|Administration                 |  |                                  | 1,547  |      |   | 1,345              |   |  | 15.0 | %
|                               |  |                                  |        |      |   |                    |   |  |      |  
|Operating income               |  | $                                | 879    |      | $ | 527                |   |  | 66.8 | %
|                               |  |                                  |        |      |   |                    |   |  |      |  
|                               |  |                                  |        |      |   |                    |   |  |      |  
|As a percentage of net
 sales: |  |                                  |        |      |   |                    |   |  |      |  
|Cost of sales                  |  |                                  | 68.4   | %    |   | 69.4               | % |  |      |  
|Gross margin                   |  |                                  | 31.6   | %    |   | 30.6               | % |  |      |  
|Research and development       |  |                                  | 8.7    | %    |   | 9.0                | % |  |      |  
|Selling                        |  |                                  | 5.0    | %    |   | 5.6                | % |  |      |  
|Administration                 |  |                                  | 11.4   | %    |   | 11.5               | % |  |      |  
|Operating income               |  |                                  | 6.5    | %    |   | 4.5                | % |  |      |  

Net
sales increased to $13,550 for the first quarter of fiscal 2010. Although we
have continued to see improvement from our low point in the third fiscal
quarter of 2009, the heavy truck industry is still significantly below levels
prior to the economic downturn with our first quarter sales run rate being
approximately 18% below fiscal 2008 sales levels. While we continue to closely
monitor all of our costs, we remain committed to spending on new product
development and technology for existing and new customers. Management believes that it is likely that our $1,539
in cash plus available borrowing of $5,778 under our revolving loan facility
will be adequate to sustain the Company throughout the fiscal year.

Comparative  Three months ended December 31,
2010 and 2009

|                                         |  |      |        |      |   |               |  |                 |       | 
|---------------------------------------- |  | ---- | ------ | ---- | - | ------------- |  | --------------- | ----- | 
|                                         |  |      |        |      |   |               |  | Percent
 Change |      
|                                         |  |      |        |      |   |               |  |                 |      
|For the Three Months Ended December
 31: |  | 2010 |        | 2009 |   | 2009 to
 2010 | 
|                                         |  |      |        |      |   |               | 
|Net sales                                |  | $    | 13,550 |      | $ | 11,709        |  |                 | 15.7% | 

Net
sales increased $1,841 in the first quarter of fiscal 2011 compared to the
first quarter of fiscal 2010. The increase in sales results from volume
increases primarily in the Asian and European truck markets and to a lesser
extent in the NAFTA truck market. Each market benefited from the general
increase in the condition of the global economy. Asian truck sales increased
47% over the comparable period for the prior fiscal year primarily due to
increased sales volumes of heavy trucks and off-road vehicles in China and
heavy trucks in India. We believe the increases are the result of adoption of
more stringent emissions standards, which mandate the inclusion of electronic
throttle controls on new vehicles, and a higher percentage of vehicles in Asia
converting to electronic throttle controls, thus allowing us to expand our
customer base in this market. European truck sales improved 57% over the same
period in fiscal 2010 due to our European customers increasing their heavy
truck and off-road build rates. In addition, European sales were low during the
first quarter of fiscal 2010 as these customers were working through high
inventory levels from fiscal 2009. NAFTA truck sales increased 10% when
compared to the first quarter of fiscal 2010 due to the continued improvements
in the economic environment. Off-road sales to Asian customers improved 54% for
the quarter ended December 31, 2010, while off-road sales to NAFTA customers
remained flat between the comparable quarters..

We
expect that electronic throttle control sales generally will continue to vary
directly with future changes in the overall economy and the demand for heavy
trucks, transit buses and off-road vehicles in particular. These variations are
largely
dependent upon, and are expected to vary directly with, production volumes in
the various geographic markets in which we serve. Additionally, competitive
pricing may reduce margins and gross sales.

14

---



|                                         |  |      |       |      |   |               |  |                |       | 
|---------------------------------------- |  | ---- | ----- | ---- | - | ------------- |  | -------------- | ----- | 
|                                         |  |      |       |      |   |               |  | Percent Change |      
|                                         |  |      |       |      |   |               |  |                |      
|For the Three Months Ended December
 31: |  | 2010 |       | 2009 |   | 2009 to
 2010 | 
|                                         |  |      |       |      |   |               | 
|Cost of
 sales                           |  | $    | 9,269 |      | $ | 8,123         |  |                | 14.1% | 

The
types of expenses included in cost of sales include raw materials, freight and
duties, warranty, wages and benefits, depreciation and amortization, production
utilities, shipping and production supplies, repairs and maintenance,
production facility property insurance, and other production overhead. As a
percent of sales, cost of sales decreased primarily due to higher sales volumes
across which we can distribute fixed overhead costs. Component and raw material costs were lower
in the first quarter of fiscal 2011 as we have been able to transition to a
lower pricing structure for some of our new products as volumes begin to
increase. Although freight and duty costs were up slightly on a quarter over
quarter basis, they were in line with increased sales volumes. Warranty costs
were down $67 quarter over quarter. In addition, wage related expenses
increased in the first quarter of fiscal 2011 as the first quarter of fiscal
2010 included temporary salary reductions as part of the cost reductions put
into place during the latter part of fiscal 2009. Full wages were reinstated
during the second quarter of fiscal 2010.

|                                         |  |      |       |      |   |               |  |                 |       | 
|---------------------------------------- |  | ---- | ----- | ---- | - | ------------- |  | --------------- | ----- | 
|                                         |  |      |       |      |   |               |  | Percent
 Change |      
|                                         |  |      |       |      |   |               |  |                 |      
|For the Three Months Ended December
 31: |  | 2010 |       | 2009 |   | 2009 to
 2010 | 
|                                         |  |      |       |      |   |               | 
|Gross profit                             |  | $    | 4,281 |      | $ | 3,586         |  |                 | 19.4% | 

Gross
profit was $4,281, or 31.6% of net sales in the first quarter of fiscal 2011,
an increase of $695 compared to the gross profit of $3,586, or 30.6% of net
sales, in the comparable fiscal 2010 period.

The
increase in gross profit in the first quarter of fiscal 2011 is primarily
driven by the 15.7% net increase in sales of electronic throttle systems to our
heavy truck and off-road customers. When comparing the first quarter of fiscal
2011 with the comparable period in fiscal 2010, manufacturing overhead costs
were up in actual dollar value, but were relatively flat as a percentage of
sales.

|                                         |  |      |       |      |   |               |  |                 |       | 
|---------------------------------------- |  | ---- | ----- | ---- | - | ------------- |  | --------------- | ----- | 
|                                         |  |      |       |      |   |               |  | Percent
 Change |      
|                                         |  |      |       |      |   |               |  |                 |      
|For the Three Months Ended December
 31: |  | 2010 |       | 2009 |   | 2009 to
 2010 | 
|                                         |  |      |       |      |   |               | 
|Research and
 development                |  | $    | 1,184 |      | $ | 1,056         |  |                 | 12.1% | 

Research
and development expenses increased $128 for the first quarter of fiscal 2011
compared to the comparable period in fiscal 2010. The Companys research and
development expenditures generally fluctuate based on the programs and products
under development at any given point in time, and that fluctuation often does
not coincide with sales cycles. Part of the increase in research and
development expenses relates to wage expenses in the first quarter of fiscal
2011 being higher than the first quarter of fiscal 2010 as that quarter was the
last quarter to include temporary salary reductions as part of the cost
reductions put into place during the latter part of fiscal 2009. In addition,
research and development expenses increased as we continue to have a record
number of engineering projects under development and to meet the higher demand,
we have added three additional engineers who are working on customer-specific
projects. Overall, we expect research and development expenses for fiscal year
2011 to increase slightly over fiscal 2010 levels due to additional new product
design projects.

|                                         |  |      |     |      |   |               |  |                 |      | 
|---------------------------------------- |  | ---- | --- | ---- | - | ------------- |  | --------------- | ---- | 
|                                         |  |      |     |      |   |               |  | Percent
 Change |     
|                                         |  |      |     |      |   |               |  |                 |     
|For the Three Months Ended December
 31: |  | 2010 |     | 2009 |   | 2009 to
 2010 | 
|                                         |  |      |     |      |   |               | 
|Selling                                  |  | $    | 671 |      | $ | 658           |  |                 | 2.0% | 

Selling
expenses for the first fiscal quarter of 2011 were up slightly when compared
with the same period for fiscal 2010. The increase is the result of increased
sales commission related to the increased sales volumes in the quarter and
increased wages expenses as the first quarter of fiscal 2010 included temporary
salary reductions. Offsetting some of these increases were overall reductions
in travel expenses during the first fiscal quarter of 2011.

15

---



|                                         |  |      |       |      |   |               |  |                 |       | 
|---------------------------------------- |  | ---- | ----- | ---- | - | ------------- |  | --------------- | ----- | 
|                                         |  |      |       |      |   |               |  | Percent
 Change |      
|                                         |  |      |       |      |   |               |  |                 |      
|For the Three Months Ended December
 31: |  | 2010 |       | 2009 |   | 2009 to
 2010 | 
|                                         |  |      |       |      |   |               | 
|Administration                           |  | $    | 1,547 |      | $ | 1,345         |  |                 | 15.0% | 

Administration
expenses for the first quarter of fiscal 2011 increased $202 when compared with
the same period in fiscal 2010. The increase in administration expense includes
increased wage expenses related to filling positions left vacant during the
economic downturn as well as the first quarter of fiscal 2010 including
temporary salary reductions as part of the cost reductions put into place
during fiscal 2009 in response to the economic downturn. In addition, other
increases in administration expenses included recording $150 related to
professional service fees in the first quarter of fiscal 2011, increases in
travel expenses and costs associated with our India facility which was opened
during the third quarter of fiscal 2010. Offsetting these increases were
reductions in legal fees of $227, as the first quarter of fiscal 2010 included
legal fees associated with the Cuesta class action lawsuit, which was settled
during the latter part of fiscal 2010.

|                                         |  |      |     |      |   |               |  |                 |       | 
|---------------------------------------- |  | ---- | --- | ---- | - | ------------- |  | --------------- | ----- | 
|                                         |  |      |     |      |   |               |  | Percent
 Change |      
|                                         |  |      |     |      |   |               |  |                 |      
|For the Three Months Ended December
 31: |  | 2010 |     | 2009 |   | 2009 to
 2010 | 
|                                         |  |      |     |      |   |               | 
|Income tax
 expense                      |  | $    | 189 |      | $ | 123           |  |                 | 53.7% | 

Income tax
expense reflects an effective tax rate of 22.7% for the quarter ended December
31, 2010 compared to an effective tax rate of 23.7% for the quarter ended
December 31, 2009. The effective tax rate fluctuations are primarily due to the
jurisdictions in which pretax income is earned and income tax rate differences
between the domestic and foreign jurisdictions. The decrease in tax rate
between quarters is also due in part to the extension of the federal research
credit during December 2010.

Financial
Condition, Liquidity and Capital Resources

At
December 31, 2010, we had cash and cash equivalents of $1,539. During the third
quarter of fiscal 2010, the Company entered into a revolving loan facility with
U.S. Bank and as of December 31, 2010 we had $5,778 available under such
revolving loan facility. We believe our cash on hand and our capacity under the
new revolving loan facility will be sufficient to meet our working capital
needs throughout the fiscal year.

The first
quarter of fiscal 2011 operating activities used cash of $917, whereas the
first quarter of fiscal 2010 generated cash from operating activities of $160.
Net income plus non cash charges for depreciation and stock based compensation
contributed $1,373 in the first quarter of fiscal 2011 compared to $1,058 in
the first quarter of fiscal 2010.

Changes in
working capital items used cash of $2,231 in the first quarter of fiscal 2011
compared to a use of cash of $884 in the first quarter of fiscal 2010. Changes
in receivables for the first quarter of fiscal 2011 generated cash of $307
compared to a use of cash of $250 in the first quarter of fiscal 2010. The
change in receivables between quarters is primarily the result of changes in
sales volumes between the respective prior quarters. Seasonal lower shipping
days in our first fiscal quarter of 2011 resulted in sales volumes decreasing
in the first quarter of fiscal 2011 when compared to the fourth quarter of
fiscal 2010, which drove a generation of cash from collection on the higher
sales. Sales in the first quarter of 2010 increased over sales in the fourth
quarter of fiscal 2009, due to truck markets beginning to recover from
depressed levels in fiscal 2009, resulting in an increase in accounts
receivable. Inventories increased $650 in the first quarter of fiscal 2011 from
the fourth fiscal quarter in 2010 compared to an increase of $93 in the first
quarter of fiscal 2010 from the fourth fiscal quarter in 2009. The fiscal
2011increase primarily relates to increasing inventory levels in line with
anticipated sales volumes increases throughout fiscal 2011 as compared to fiscal
2010. Accounts payable and accrued expenses decreased in the first quarter of
fiscal 2011 from the fourth fiscal quarter in 2010, primarily due to timing of
payments on accounts payable, increased seasonal payments over the fourth
fiscal quarter of 2010 and a reduction in our warranty provision of $392
related to payments to one customer for prior warranty claims. Cash flows from
operations for the three months ended December 31, 2010 included payments to
our pension plans of $146 compared to $71 for the three months ended December
31, 2009. We believe it is likely we will generate positive cash from
operations during fiscal 2011, however, depending on the continued uncertainty
in the world-wide economic market, we could experience additional periods of negative
cash flow from operations.

16

---



Cash
used in investing activities was $836 for the three months ended December 31,
2010 and $372 for the three months ended December 31, 2009 and was comprised
solely of purchases of equipment for both periods. We expect our cash use for
investing activities to increase throughout fiscal year 2011 as we continue to
make purchases of capital equipment. We currently anticipate spending
approximately $4,200 in capital expenditures for fiscal 2011. This is a higher
capital spending level than what we experienced last year as we have a number
of new projects and we are expanding our test and development facilities to
handle the increased activity. In addition, with the opening of our Pune, India
manufacturing facility, we will incur higher than normal capital expenditures
during the fiscal year.

Cash
generated from financing activities was $276 for the quarter ended December 31,
2010, compared to $12 for the quarter ended December 31, 2009. Cash generated
from financing activities for the first quarter of fiscal 2011 primarily
relates to net borrowings on our revolving loan facility of $250 and proceeds
from the exercise of stock options of $26. Cash generated from financing
activities for the first quarter of fiscal 2010 relates to proceeds from the
exercise of stock options.

Contractual
Obligations as of December 31, 2010

At
December 31, 2010, our contractual obligations consisted of operating lease
obligations and a license agreement. We did not have any material letters of
credit, or debt guarantees outstanding at December 31, 2010. Maturities of
these contractual obligations consist of the following:

|                                 |  |                        |       |                   |   |            |  |            |     |  |   |    | 
|-------------------------------- |  | ---------------------- | ----- | ----------------- | - | ---------- |  | ---------- | --- |  | - | -- | 
|                                 |  | Payments due by period |      
|                                 |  |                        |      
|                                 |  | Total                  |       | Less than
 1 year |   | 1  3years |  | 3  5years |    
|                                 |  |                        |       |                   |   |            |  |            |    
|Operating
 leases                |  | $                      | 1,409 |                   | $ | 715        |  | $          | 694 |  | $ |   | 
|MMT license
 - minimum royalties |  |                        | 257   |                   |   | 57         |  |            | 150 |  |   | 50 | 
|                                 |  |                        |       |                   |   |            |  |            |     |  |   |    | 
|                                 |  | $                      | 1,666 |                   | $ | 772        |  | $          | 844 |  | $ | 50 | 
|                                 |  |                        |       |                   |   |            |  |            |     |  |   |    | 

Certain
liabilities, including those related to our pension and post-retirement benefit
plans, are reported in the accompanying condensed consolidated balance sheets
but are not reflected in the table above due to the absence of stated
maturities. We have net obligations at December 31, 2010 related to our pension
plans and post-retirement medical plan of $6,282 and $2,541, respectively. We
funded $146 to our pension plans during the first quarter of fiscal 2011 and
$71 during the first quarter of fiscal 2010. We expect to make payments to our pension
plans of $906 throughout the rest of fiscal 2011.

Item 3. Quantitative and Qualitative Disclosures About
Market Risk

Market
risk is the potential loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates and changes in
the market value of investments.

Interest Rate Risk

The
Company has a revolving loan facility with U.S. Bank, which expires on June 30,
2012.

As
of December 31, 2010, there was an outstanding balance of $250 on the revolving
loan. The Company does not believe a hypothetical 10% change in end of period
interest rates or changes in future interest rates on these variable rate
obligations would have a material effect on its financial position, results of
operations, or cash flows. The Company has not hedged its exposure to interest
rate fluctuations.

Foreign Currency Risk:

We
sell our products to customers in the heavy truck, transit bus and off-road
equipment industries. For the three months ended December 31, 2010 and 2009,
the Company had foreign sales of approximately 49% and 42% of net sales,
respectively. All worldwide sales in the first three months of fiscal 2011 and
2010, with the exception of $855 and $564, respectively, were denominated in
U.S. dollars. We have a manufacturing facility in Suzhou, China and sales
offices in Shanghai, China and Munich, Germany and during fiscal 2010, we
established a manufacturing facility in Pune, India. We purchase components
internationally for use in both our products whose sales are denominated in
U.S. dollars and other currencies. Although the Company is expanding its
international exposure, it does not believe that changes in
future exchange rates would have a material effect on its financial position,
results of operations, or cash flows at this time. As a result, the Company has
not entered into forward exchange or option contracts for transactions to hedge
against foreign currency risk. The Company will continue to assess its foreign currency
risk as its international operations, international purchases and sales
increase.

17

---



Investment Risk:

The
Company does not use derivative financial or commodity instruments. The
Companys financial instruments include cash and cash equivalents, accounts
receivable, accounts payable and long-term obligations. The Companys cash and
cash equivalents, accounts receivable and accounts payable balances are
short-term in nature, and, thus, the Company believes they are not exposed to
material investment risk.

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 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.

Internal
control systems, no matter how well designed and operated, have inherent
limitations. Therefore, even a system which is determined to be effective
cannot provide absolute assurance that all control issues have been detected or
prevented. Our systems of internal controls are designed to provide reasonable
assurance with respect to financial statement preparation and presentation.

18

---



PART II  OTHER INFORMATION

Item 1. Legal Proceedings

We
are a party 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 liabilities. While the outcome of the
pending proceedings cannot be predicted with certainty, based on our review, we
believe that any unrecorded liability that may result is not likely to have a
material effect on our liquidity, financial condition or results of operations.

Item 1A. Risk Factors

There
have been no significant changes in risk factors for the quarter ended December
31, 2010. See the information set forth in the section entitled Risk Factors
in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults
Upon Senior Securities

None

Item 4. Reserved

Item 5. Other
Information

None

Item 6. Exhibits

|                |  |                                                                                                                                                                                                                                                  
|--------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 Number |  | Description                                                                                                                                                                                                                                      
|                |  |                                                                                                                                                                                                                                                  
|                |  |                                                                                                                                                                                                                                                  
|3.01(a)         |  | Certificate
 of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3.01 (a) to
 the Registrants quarterly report on Form 10-Q for the quarter ended December
 31, 2006)                                          
|                |  |                                                                                                                                                                                                                                                  
|3.01(b)         |  | Certificate
 of Amendment to Certificate of Incorporation of the Registrant, dated
 February 27, 1995 (Incorporated by reference to Exhibit 3.01 (b) to
 the Registrants quarterly report on Form 10-Q for the quarter ended December
 31, 2006)
|                |  |                                                                                                                                                                                                                                                  
|3.01(c)         |  | Certificate
 of Amendment to Certificate of Incorporation of the Registrant, dated October
 28, 2004 (Incorporated
 by reference to Exhibit 3.01 (c) to the Registrants quarterly report on Form
 10-Q for the quarter ended December 31, 2006) 
|                |  |                                                                                                                                                                                                                                                  
|3.01(d)         |  | Certificate
 of Amendment to Certificate of Incorporation of the Registrant, dated
 February 22, 2005 (Incorporated by reference to Exhibit 3.01 (d) to
 the Registrants quarterly report on Form 10-Q for the quarter ended December
 31, 2006)
|                |  |                                                                                                                                                                                                                                                  
|3.01(e)         |  | Certificate
 of Amendment to Certificate of Incorporation of the Registrant, dated March
 2, 2006 (Incorporated
 by reference to Exhibit 3.01 (e) to the Registrants quarterly report on Form
 10-Q for the quarter ended December 31, 2006)    

19

---



|      |  |                                                                                                                                                                                                                               
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.02  |  | Restated
 By-Laws of the Registrant as amended July 1, 2002 (Incorporated by reference to Exhibit 3.6 to
 the Registrants quarterly report on Form 10-Q, Commission File No.
 000-18083, for the quarter ended June 30, 2002)
|      |  |                                                                                                                                                                                                                               
|31.01 |  | Certification of Chief Executive Officer required by Rule 13a-14(a)
 or Rule 15d-14(a) (Filed herewith)                                                                                                                       
|      |  |                                                                                                                                                                                                                               
|31.02 |  | Certification of Chief Financial Officer required by Rule 13a-14(a)
 or Rule 15d-14(a) (Filed herewith)                                                                                                                       
|      |  |                                                                                                                                                                                                                               
|32.01 |  | Certification
 of Patrick W. Cavanagh Pursuant to 18 U.S.C. Section 1350 as
 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed
 herewith)                                                              
|      |  |                                                                                                                                                                                                                               
|32.02 |  | 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 (Filed
 herewith)                                                                 

20

---



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:
 February 9, 2011 | /s/ PATRICK
 W. CAVANAGH              | 
|                        |                                       | 
|                        | Patrick W.
 Cavanagh                  | 
|                        | President and Chief Executive Officer | 
|                        |                                       | 
|Date:
 February 9, 2011 | /s/ DENNIS
 E. BUNDAY                 | 
|                        |                                       | 
|                        | Dennis E.
 Bunday                     | 
|                        | Chief
 Financial Officer              | 

21

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