# UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-Q

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

# For the quarterly
period ended: June 30, 2003

# Commission file number
0-18083

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

| | Delaware(State or other jurisdiction ofincorporation or organization)        |  | 84-1099587(I.R.S. EmployerIdentification No.) | 
| | ---------------------------------------------------------------------------- |  | --------------------------------------------- | 
| |                                                                              |  |                                               | 
| | 14100 SW 72nd Avenue,Portland, Oregon(Address of principal executive office) |  | 97224(zip code)                               | 

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

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]        No [   ]

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes [   ]         No [X]

The number of shares
outstanding of the registrants common stockat July 31, 2003: 20,125,492

# DISCLOSURE REGARDING
FORWARD LOOKING STATEMENTS

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

# Williams Controls, Inc.

# June 30, 2003

# Table of Contents

|                                                                                                      | PageNumber
|----------------------------------------------------------------------------------------------------- | ----------
|Part I.  Financial Information                                                                        |           
|                                                                                                      |           
|Item 1. Financial Statements (unaudited)                                                             
|                                                                                                      |           
|Consolidated Balance Sheets, June 30, 2003 and
            September 30, 2002                         | 1         
|                                                                                                      |           
|Consolidated Statements of Operations, three and nine months
            ended June 30, 2003 and 2002 | 2         
|                                                                                                      |           
|Consolidated Statements of Cash Flows, nine months ended
            June 30, 2003 and 2002           | 3         
|                                                                                                      |           
|Notes to Consolidated Financial Statements                                                            | 4         
|                                                                                                      |           
|Item 2.  Management's Discussion and Analysis of Financial Condition                                 
|and Results of Operations                                                                             | 12        
|                                                                                                      |           
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                   | 20        
|                                                                                                      |           
|Item 4.  Controls and Procedures                                                                      | 20        
|                                                                                                      |           
|Part II.  Other Information                                                                          
|                                                                                                      |           
|Item 1.  Legal Proceedings                                                                            | 21        
|                                                                                                      |           
|Item 2.  Changes in Securities and Use of Proceeds                                                    | 21        
|                                                                                                      |           
|Item 3.  Defaults Upon Senior Securities                                                              | 21        
|                                                                                                      |           
|Item 4.  Submission of Matters to a Vote of Security Holders                                          | 21        
|                                                                                                      |           
|Item 5.  Other Information                                                                            | 21        
|                                                                                                      |           
|Item 6.  Exhibits and Reports on Form 8-K                                                             | 21        
|                                                                                                      |           
|Signature Page                                                                                        | 23        

# Part I

# Item 1. Financial
Statements

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

|                                                                | June 30,2003 | September 30,2002
|--------------------------------------------------------------- | ------------ | -----------------
|ASSETS                                                          |              |                  
|Current Assets:                                                
|Cash and cash equivalents                                       | $      860   | $      829       
|Trade and other accounts receivable, less allowance of         
|$286 and $334 at June 30, 2003 and September 30                
|2002, respectively                                              | 8,022        | 8,764            
|Inventories, net                                                | 5,532        | 4,940            
|Prepaid expenses and other current assets                       | 711          | 624              
|                                                                |              |                  
|Total current assets                                            | 15,125       | 15,157           
|Property, plant, and equipment, net                             | 10,201       | 10,530           
|Other assets, net                                               | 346          | 635              
|                                                                |              |                  
|Total assets                                                    | $ 25,672     | $ 26,322         
|                                                                |              |                  
|LIABILITIES AND SHAREHOLDERS' DEFICIT                          
|Current Liabilities:                                           
|Accounts payable                                                | $   4,137    | $   5,326        
|Accrued expenses                                                | 6,054        | 6,856            
|Current portion of long-term debt and capital leases            | 4,991        | 4,084            
|                                                                |              |                  
|Total current liabilities                                       | 15,182       | 16,266           
|Long-term debt and capital lease obligations                    | 935          | 1,483            
|Employee benefit obligations                                    | 7,571        | 6,293            
|Subordinated debt                                               | --           | 2,139            
|Mandatory redeemable Convertible Series B Preferred Stock, net 
|(150,000 issued and outstanding at June 30, 2003 and           
|September 30, 2002)                                             | 14,986       | 13,109           
|Commitments and contingencies                                  
|Shareholders' Deficit:                                         
|Preferred stock ($.01 par value, 50,000,000 authorized)        
|Series A-1 (77,550 issued and outstanding at June 30,          
|2003 and September 30, 2002)                                    | 1            | 1                
|Series A (650 issued and outstanding at June 30, 2003          
|and September 30, 2002)                                         | --           | --               
|Common stock ($.01 par value, 50,000,000 authorized; 20,125,492
|and 19,928,522 issued and outstanding at June 30, 2003 and     
|September 30, 2002)                                             | 201          | 199              
|Additional paid-in capital                                      | 23,687       | 23,559           
|Accumulated deficit                                             | (32,489)     | (32,325)         
|Treasury stock (130,200 shares at June 30, 2003 and            
|September 30, 2002)                                             | (377)        | (377)            
|Other comprehensive loss - Pension liability adjustment         | (4,025)      | (4,025)          
|                                                                |              |                  
|Total shareholders' deficit                                     | (13,002)     | (12,968)         
|                                                                |              |                  
|Total liabilities and shareholders' deficit                     | $ 25,672     | $ 26,322         
|                                                                |              |                  

See accompanying notes
to Unaudited Consolidated Financial Statements.

1

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

|                                                                    | Three Months EndedJune 30, | Nine Months EndedJune 30,
|------------------------------------------------------------------- | -------------------------- | -------------------------
|
|Net sales                                                           | $        12,634            | $        13,467          
|Cost of sales                                                       | 9,731                      | 9,487                    
|                                                                    |                            |                          
|Gross margin                                                        | 2,903                      | 3,980                    
|Operating expenses (income):                                       
|Research and development                                            | 975                        | 856                      
|Selling                                                             | 353                        | 360                      
|Administration                                                      | 1,173                      | 1,443                    
|Gain on settlement with customer                                    | --                         | --                       
|Loss on impairment of investment - Ajay                             | --                         | --                       
|                                                                    |                            |                          
|Total operating expenses                                            | 2,501                      | 2,659                    
|                                                                    |                            |                          
|Income (loss) from continuing operations                            | 402                        | 1,321                    
|Other (income) expenses:                                           
|Interest income                                                     | (2)                        | --                       
|Interest expense                                                    | 99                         | (73)                     
|Other (income) expense, net                                         | (19)                       | 3                        
|                                                                    |                            |                          
|Total other (income) expenses                                       | 78                         | (70)                     
|Income (loss) from continuing operations before income taxes        | 324                        | 1,391                    
|Income tax benefit                                                  | --                         | 231                      
|                                                                    |                            |                          
|Net income (loss) from continuing operations                        | 324                        | 1,622                    
|Discontinued operations:                                           
|Gain from settlement of obligations                                 | --                         | --                       
|                                                                    |                            |                          
|Net income (loss)                                                   | 324                        | 1,622                    
|Preferred dividends and accretion of Series B Preferred Stock       | (697)                      | (348)                    
|                                                                    |                            |                          
|Net income (loss) allocable to common shareholders                  | $           (373)          | $          1,274         
|                                                                    |                            |                          
|Income (loss) per common share from continuing operations - basic   | $         (0.02)           | $            0.06        
|Income per common share from discontinued operations - basic        | --                         | --                       
|                                                                    |                            |                          
|Net income (loss) per common share - basic                          | $         (0.02)           | $            0.06        
|                                                                    |                            |                          
|Weighted average shares used in per share calculation - basic       | 20,125,492                 | 19,928,522               
|                                                                    |                            |                          
|Income (loss) per common share from continuing operations - diluted | $         (0.02)           | $            0.06        
|Income per common share from discontinued operations - diluted      | --                         | --                       
|                                                                    |                            |                          
|Net income (loss) per common share - diluted                        | $         (0.02)           | $            0.06        
|                                                                    |                            |                          
|Weighted average shares used in per share calculation - diluted     | 20,125,492                 | 21,037,522               
|                                                                    |                            |                          

See accompanying notes
to Unaudited Consolidated Financial Statements.

2

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

|                                                                        | Nine Months EndedJune 30,
|----------------------------------------------------------------------- | -------------------------
|
|Cash flows from operating activities:                                   |                          
|Net income (loss)                                                       | $ 1,844                  
|Adjustments to reconcile net income (loss) to net cash provided by     
|(used in) operating activities:                                        
|Gain from discontinued operations                                       | (120)                    
|(Gain) loss from sale of fixed assets                                   | 80                       
|Depreciation                                                            | 1,252                    
|Amortization                                                            | 25                       
|Loss from impairment of investment - Ajay                               | --                       
|Gain on settlement with customer                                        | (51)                     
|Gain from settlement of liabilities                                     | (275)                    
|Changes in operating assets and liabilities                            
|Receivables, net                                                        | 820                      
|Inventories                                                             | (592)                    
|Accounts payable and accrued expenses                                   | (1,427)                  
|Other                                                                   | 1,455                    
|                                                                        |                          
|Net cash provided by (used in) operating activities                     | 3,011                    
|                                                                        |                          
|Cash flows from investing activities:                                  
|Purchases of property, plant and equipment                              | (1,099)                  
|Proceeds from sale of fixed assets                                      | 7                        
|Proceeds from collection on note receivable                             | 11                       
|                                                                        |                          
|Net cash used in investing activities                                   | (1,081)                  
|                                                                        |                          
|Cash flows from financing activities:                                  
|Net borrowings of debt and capital lease obligations                    | 359                      
|Net change in book overdraft                                            | --                       
|Repayment of subordinated debt                                          | (2,139)                  
|Financing costs related to recapitalization                             | (119)                    
|                                                                        |                          
|Net cash (used in) provided by financing activities                     | (1,899)                  
|                                                                        |                          
|Net increase in cash and cash equivalents                               | 31                       
|Cash and cash equivalents at beginning of period                        | 829                      
|                                                                        |                          
|Cash and cash equivalents at end of period                              | $    860                 
|                                                                        |                          
|Supplemental disclosure of cash flow information:                      
|Interest paid                                                           | $    434                 
|Income taxes paid (refund)                                              | $  (243)                 
|Supplemental disclosure of non-cash investing and financing activities:
|Preferred dividends accrued but not paid and Series B accretion         | $ 2,008                  
|Previously accrued dividends transferred to equity                      | $       --               
|Issuance of common stock for services previously accrued                | $    130                 
|Issuance of notes receivable for sale of property                       | $      89                
|Reduction of debt in exchange for building                              | $       --               
|Debt modification fee accrued, not paid                                 | $       --               
|Accrued fees/interest converted to debt                                 | $       --               

See accompanying notes
to Unaudited Consolidated Financial Statements.

3

# Williams Controls, Inc.
Notes to Consolidated
Financial Statements
Three and Nine Months ended
June 30, 2003 and 2002
(Dollars in thousands,
except share and per share amounts)
(Unaudited)

# Note 1. Organization

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

# Note 2. Basis of
Presentation

The accompanying unaudited interim
consolidated financial statements have been prepared by the Company and, in the opinion of
management, reflect only normal recurring adjustments, which are necessary to present
fairly the Companys financial position as of June 30, 2003 and the results of
operations and cash flows for the three and nine months ended June 30, 2003 and 2002. The
results of operations for the three and nine months ended June 30, 2003 are not
necessarily indicative of the results to be expected for the entire fiscal year.

Certain information and footnote
disclosures made in the last Annual Report on Form 10-K have been condensed or omitted for
the interim consolidated statements. Certain costs are estimated for the full year and
allocated to interim periods based on activity associated with the interim period.
Accordingly, such costs are subject to year-end adjustment. It is the Companys
opinion that, when the interim consolidated statements are read in conjunction with the
September 30, 2002 annual report on Form 10-K, the disclosures are adequate to make the
information presented not misleading. The interim consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

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

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

# Note 3. Accounting for
stock based compensation

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

For the three and nine months ended
June 30, 2003 and 2002, there were no stock option grants. Since no options were granted
in the periods presented, the pro forma effect of compensation expense shown below is
based on recognizing the fair value of stock options issued after December 31, 1994 and in
periods prior to these shown over their average vesting period. If the Company had
accounted for its stock-based compensation plans using the fair value-based method in
accordance with SFAS No. 123, the Companys net income (loss) and net income (loss)
per share would approximate the pro forma disclosures below:

4

|                                                   | Three Months EndedJune 30, | Nine Months EndedJune 30,
|-------------------------------------------------- | -------------------------- | -------------------------
|
|Net income (loss) allocable to common shareholders |                            |                          
|as reported                                        | $        (373)             | $      1,274             
|                                                   |                            |                          
|Deduct: Total stock-based employee compensation   
|expense determined under fair value based method, 
|net of related tax effects                         | (25)                       | (47)                     
|                                                   |                            |                          
|Pro forma net income (loss)                        | $        (398)             | $      1,227             
|                                                   |                            |                          
|Earnings (loss) per share:                        
|Basic - as reported                                | $       (0.02)             | $         0.06           
|                                                   |                            |                          
|Basic - pro forma                                  | $       (0.02)             | $         0.06           
|                                                   |                            |                          
|Diluted - as reported                              | $       (0.02)             | $         0.06           
|                                                   |                            |                          
|Diluted - pro forma                                | $       (0.02)             | $         0.06           
|                                                   |                            |                          

# Note 4. Comprehensive
Income (Loss)

SFAS No. 130, Reporting
Comprehensive Income, requires companies to report a measure of all changes in
equity except those resulting from investments by owners and distributions to owners.
Total comprehensive income (loss) for the three months ended June 30, 2003 and 2002 was
$324 and $1,622, respectively, and for the nine months ended June 30, 2003 and 2002 was
$1,844 and ($2,426) respectively, and consisted solely of net income (loss). As of June
30, 2003, accumulated other comprehensive loss was ($4,025) and consisted of accumulated
benefit obligations in excess of the plan assets for both the Hourly Employees Pension
plan and the Salaried Employees Pension Plan.

# Note 5. Income (Loss)
Per Share

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

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

|                                             | Three Months EndedJune 30, 2003 | Three Months EndedJune 30, 2002
|-------------------------------------------- | ------------------------------- | -------------------------------
|
|Net income (loss) from continuing operations | $         324                   |                                
|Less - Preferred dividends and accretion    
|of Series B preferred stock                  | (697)                           |                                
|                                             |                                 |                                
|Basic EPS -                                 
|Income (loss) allocable to common           
|shareholders from continuing operations      | $       (373)                   | 20,125,492                     
|                                             |                                 |                                
|Effect of dilutive securities -             
|Convertible subordinated debt                | --                              | --                             
|                                             |                                 |                                
|Diluted EPS -                               
|Income (loss) allocable to common           
|shareholders from continuing operations      | $       (373)                   | 20,125,492                     
|                                             |                                 |                                

5

|                                             | Nine Months EndedJune 30, 2003 | Nine Months EndedJune 30, 2002
|-------------------------------------------- | ------------------------------ | ------------------------------
|
|Net income (loss) from continuing operations | $       1,724                  |                               
|Less - Preferred dividends and accretion    
|for Series B preferred stock                 | (2,008)                        |                               
|                                             |                                |                               
|Basic and diluted EPS -                     
|Loss allocable to common shareholders       
|from continuing operations                   | $       (284)                  | 20,103,125                    
|                                             |                                |                               

For the three months ended June 30,
2003, the Company had options, warrants, convertible preferred stock  Series A and
convertible preferred stock  Series B covering 41,066,532 shares that were not
considered in the EPS calculation compared to 40,335,068 shares for the nine months ended
June 30, 2003 that were not considered in the dilutive EPS calculation since they would
have been antidilutive. For the three months ended June 30, 2002, the Company had options,
warrants, and convertible preferred stock  Series A covering 8,629,406 shares that
were not considered in the EPS calculation since they would have been antidilutive. For
the nine months ended June 30, 2002, the Company had options, warrants, convertible
preferred stock  Series A, and convertible subordinated debt covering 9,738,214
shares not considered in the dilutive EPS calculation since they would have been
antidilutive.

# Note 6. Inventories

Inventories
consist of the following:

|                | June 30, 2003 | September 30,2002
|--------------- | ------------- | -----------------
|Raw materials   | $       3,722 | $       3,294    
|Work in process | 566           | 574              
|Finished goods  | 1,244         | 1,072            
|                |               |                  
|                | $       5,532 | $       4,940    
|                |               |                  

# Note 7. Investment in and
Receivables from Affiliate

Prior to the second quarter of fiscal
2002, the Company had notes and accounts receivable from Ajay Sports, Inc.
(Ajay) with a carrying value of $3,565, including a $500 note receivable,
which was reflected as a reduction in the Companys shareholders equity. The
Companys former chief executive officer and former Chairman of the Board, Thomas W.
Itin, is an officer and shareholder of Ajay. The investment in and certain loans of the
Company to Ajay were guaranteed by Thomas W. Itin.

The Company evaluated the
realizability of its investment in and receivables from Ajay and based on the
Companys collection efforts determined the investment in and receivables from Ajay
were impaired; accordingly, an impairment loss for the entire carrying value of $3,565 was
recorded in the second quarter of fiscal 2002. Additionally, the Company evaluated the
collectability of the guarantees of Mr. Itin, including the cost of collections and
concluded that these guarantees were worthless.

In November 2002, the Company settled
all claims related to Ajay and Mr. Itin, including previously filed suits in the Circuit
Court for Oakland County, Michigan and the Multnomah Circuit Court for the State of
Oregon. As part of the settlement, the Company retained a $2,500 interest in the notes
receivable owed to the Company by Ajay; however, no amounts have been recorded on the
financial statements for these interests. Additionally, as part of the settlement,
although the Company believed the guarantees of Mr. Itin were enforceable, based on the
Companys evaluation of the ultimate collectability of the guarantees, including the
cost of collections, Mr. Itin was relieved of his guaranty obligation.

6

# Note 8. Financing
Arrangements  Recapitalization

On July 1, 2002 the Company completed
the previously announced recapitalization transaction with American Industrial Partners
(AIP) whereby an affiliate of AIP invested $13,000, less fees and expenses,
into the Company by acquiring 130,000 shares of the Companys newly authorized Series
B Preferred Stock, 15% Redeemable Convertible Series (Series B Preferred). As a result of
the July 2002 transaction, AIP is entitled to and has elected a majority of the members of
the Companys Board of Directors. Along with the investment by AIP, an investor group
that held $2,000 of the Companys 12% secured Subordinated Debentures exchanged those
securities for $2,000 of Series B Preferred. As additional elements of the
recapitalization transaction, the Company (i) entered into a new five-year revolving and
term loan agreement with its existing primary lender, Wells Fargo Credit, Inc.
(Wells); (ii) repaid from the cash proceeds the remaining $3,000 face amount
of 12% secured subordinated debentures, after giving consideration to the $2,000 of
debentures converted to Series B Preferred; (iii) eliminated the conversion feature,
increased the interest rate to 12.0% (further increasing to 15.0% in July 2003) and
extended the maturity to July 1, 2004 of approximately $2,139 face amount of convertible
subordinated debentures; (iv) exchanged approximately $7,755 in Series A Preferred Stock,
7 1/2% Convertible Redeemable Series, (Series A Preferred) shares for Series A-1 Preferred
Stock, Non-Redeemable Convertible Series, (Series A-1 Preferred); (v) cancelled in the
fourth quarter of fiscal 2002 accrued but unpaid dividends of $1,413 on Series A preferred
exchanged for Series A-1 Preferred which were outstanding as of July 14, 2002 and (vi)
accrued in the fourth quarter of 2002 a one-time dividend on the new Series A-1 Preferred
in an amount equal to the dividends canceled as a result of the exchange of the Series A
Preferred. The remaining cash proceeds from the recapitalization were used for working
capital purposes, including the payment of certain past due accounts payable.

The Series B Preferred is convertible
into shares of common stock at $.85 per share. The shares of Series A-1 Preferred are
convertible into shares of common stock at $.66. Both conversion prices are subject to
customary anti-dilution adjustment. The Series B and Series A-1 conversion price may also
be adjusted based on certain future transactions. Series B Preferred is mandatorily
redeemable on July 1, 2009 or following a change of control of the Company. Dividends on
Series B Preferred are payable in cash when and if declared by the Companys Board of
Directors. Accrued dividends can be converted by the holders into the Companys
common stock at the then current conversion rate. The Series B Preferred has been recorded
net of expenses and is being accreted to its redemption value of $15,000 over seven years.
Dividends accrued on the Series B Preferred are included in the carrying value of the
Series B Preferred stock. In the second quarter of 2003, the Company recognized additional
costs of $119 related to the issuance of the Series B Preferred, which was netted against
the carrying value of the Series B Preferred.

Note 9. Settlement of accounts
payable and customer contingencies

During fiscal 2001, the Company had a
product recall related to weld failures on certain electronic throttle control systems. To
recover certain previously incurred costs of the recall, in November 2002, the Company
reached a $163 total release and settlement of its accounts payable balance to one of its
vendors. The settlement was recorded as a reduction of cost of sales during the first
quarter ended December 31, 2002 and is included in the accompanying statement of
operations for the nine months ended June 30, 2003.

In January 2003, the Company reached
a settlement with a prior customer on a cancelled supply contract from 1999. Under the
terms of the settlement, the Company would receive $900, of which $800 was received in
January with the remaining $100 received in May 2003. Also included in this settlement was
the waiver of an accounts payable obligation with a certain vendor. The amount recorded on
the books for this obligation was $51. Based on this obligation being waived, this amount
is included in the overall gain recognized from this settlement. The gain of $951 is
reflected as Gain from settlement with customer within operating expenses of
the consolidated statements of operations for the nine months ended June 30, 2003.

In June 2002, the Company entered
into an agreement with a vendor and customer of the Company, Caterpillar, Inc.
(Caterpillar) to remedy past due accounts between the Company and Caterpillar.
Under the agreement, the Company remitted to Caterpillar $1,250 in July 2002 and made
monthly payments through December 2002 for a total of $2,850. As part of this agreement
the Company and Caterpillar returned to normal vendor terms. Also in connection with the
agreement, Caterpillar agreed to a reduction of previously accrued interest on past due
payables. As a result, the Company reduced accrued interest and interest expense by $720
during the three months ended June 30, 2002. The $720 is shown as a reduction in interest
expense in the consolidated statements of operations for the three and nine months ended
June 30, 2002. In accordance with SFAS No. 145, the $720 was not reflected as an
extraordinary item.

7

# Note 10. Debt

As part of the recapitalization
transaction on July 1, 2002, the Company entered into a new five-year credit facility with
Wells, which replaced the Companys prior loan Facility with Wells. On July 1, 2002,
the Companys existing term loan and revolving credit facility converted to the new
credit terms. The new loan facility with Wells provides for $12,200 in revolving and term
loans. Interest rates under the new agreement are currently Wells prime rate plus
2.00% for the revolving debt and Wells prime rate plus 2.25% for the term loans.
Fees under the loan agreement include an unused revolver fee of .25% on the unused
portion, a term loan prepayment fee of 2% in the first year and 1% thereafter, and a
revolving loan termination fee of $200 in year 1 and $100 thereafter. The revolver and
term loan A mature on July 1, 2007 and term loan B matures on July 1, 2004. The loans are
secured by essentially all of the assets of the Company. The Company had available under
its revolving credit facility $3,841 and $4,400 at June 30, 2003 and September 30, 2002,
respectively. In June 2003, the Company used funds from its revolving credit facility to
pay off the entire outstanding subordinated debt balance of $1,989. The subordinated debt
allowed for prepayment and no gain or loss was recorded in connection with this
extinguishment. The payment of the subordinated debt also reduced the overall availability
under the revolving credit facility.

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

|                                                         | June 30,2003  | September 30,2002
|-------------------------------------------------------- | ------------- | -----------------
|Bank revolving credit facility due July 1, 2007, bearing |               |                  
|interest at a variable rate, (6.00% at June 30, 2003)   
|included in current liabilities                          | $       4,173 | $       2,981    
|                                                        
|Bank Term Loan A due July 1, 2007, balance bearing      
|interest at a variable rate, (6.25% at June 30, 2003)   
|payable in monthly installments of $23                   | 1,120         | 1,330            
|                                                        
|Bank Term Loan B due July 1, 2004, balance bearing      
|interest at a variable rate, (6.25% at June 30, 2003)   
|payable in monthly installments of $33                   | 400           | 700              
|                                                        
|Note Payable - terminated lease - Mitsubishi due        
|August 1, 2003, balance bearing interest at 8.5% per    
|annum payable in monthly installments of $14             | 14            | 137              
|                                                        
|Note Payable - terminated lease - Wells Fargo leasing,  
|balance bearing interest at 10.0% per annum payable in  
|monthly installments of $15, paid in full March 1, 2003  | --            | 155              
|                                                        
|Capital Leases                                           | 219           | 264              
|                                                         |               |                  
|                                                         | 5,926         | 5,567            
|Less current portion                                     | 4,991         | 4,084            
|                                                         |               |                  
|                                                         | $         935 | $       1,483    
|                                                         |               |                  

# Note 11. Product
Warranties

In November 2002, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (FIN 45). This
interpretation elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements in this interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002.

The Company establishes a product
warranty reserve based on a percentage of product sales. The established reserve is based
on historical return rates of products and is included in accrued expenses on the
accompanying consolidated balance sheet. Following is a reconciliation of the changes in
the Companys warranty reserve for the three and nine months ended June 30, 2003 as
required by FIN 45.

8

|Balance at September 30, 2002 | $ 1,293
|----------------------------- | -------
|Payments                      | (186)  
|Additional accruals           | 156    
|Accrual adjustments           | --     
|                              |        
|Balance at December 31, 2002  | 1,263  
|Payments                      | (211)  
|Additional accruals           | 1,147  
|Accrual adjustments           | (181)  
|                              |        
|Balance at March 31, 2003     | 2,018  
|Payments                      | (158)  
|Additional accruals           | 152    
|Accrual adjustments           | (57)   
|                              |        
|Balance at June 30, 2003      | $ 1,955
|                              |        

Included in the warranty reserve is
an accrual for a product recall of $53 and $283 at June 30, 2003 and September 30, 2002,
respectively. The $57 accrual adjustment recorded in the third quarter of 2003 relates to
a small reduction of the product recall accrual based on the Companys assessment of
its remaining obligation for the recall and a $40 accrual adjustment for normal
warranties. In the second quarter of 2003, the $181 accrual adjustment was recorded
related to a reduction of the product recall accrual, which was also based on the
Companys assessment of its remaining obligation for this recall at that time.

In January 2003, the Company was
notified of higher than normal warranty claims on one of its electronic throttle control
systems by one customer. Management is currently working with its customer to repair the
defective part. Management estimates that the total potential units involved is no more
than 30,000 and in the second quarter of fiscal 2003 recorded an accrual of $985 for the
estimated cost of the repairs. All units that were in the customers inventory have
been returned or replaced. The remaining possible defective parts are installed on
vehicles and vehicle owners will be notified that the parts should be replaced. At June
30, 2003, the accrual was $890 and is included in the amounts above.

# Note 12. Gain from
Discontinued Operations

In October 2001, the Company
exchanged a building of its previously discontinued Agricultural Equipment segment with a
carrying value of $0 in satisfaction of mortgage debt of $417. The resulting gain has been
recorded in discontinued operations for the nine months ended June 30, 2002 on the
accompanying consolidated statements of operations and reflected as a gain on sale of
buildings, since the fair value of the building was estimated to equal or exceed the
carrying value of the debt.

During the second quarter of fiscal
2003, the Company settled a lease obligation of its previously discontinued Kenco Williams
business. A gain of $120 resulted from this settlement, which has been recorded in
discontinued operations for the nine months ended June 30, 2003 on the accompanying
consolidated statements of operations.

# Note 13. Segment
Information

The Company accounts for its segments
in accordance with SFAS No. 131 Disclosures about Segments of an Enterprise and
Related Information. The Company operates in two business segments: (1) vehicle
components and (2) electrical components. As a result of terminating and selling certain
product lines, the Company has no significant current operations in the electrical
components segment. Accordingly, the operations for the three and nine months ended June
30, 2003 are presented as one segment. In the prior period the electrical components
segment met certain quantitative thresholds for disclosure pursuant to SFAS No. 131,
therefore financial information for the electrical components segment is shown for the
three and nine months ended June 30, 2002.

|                                         | Three MonthsEndedJune 30, 2002 | Nine MonthsEndedJune 30, 2002
|---------------------------------------- | ------------------------------ | -----------------------------
|Net sales by classes of similar products |                                |                              
|Vehicle components                       | $       13,423                 | $       37,414               
|Electrical components                    | 44                             | 319                          
|                                         |                                |                              
|                                         | $       13,467                 | $       37,733               
|                                         |                                |                              

9

|Income (loss) from continuing operations       |               |               
|---------------------------------------------- | ------------- | --------------
|Vehicle components                             | $       1,368 | $       2,772 
|Electrical components                          | (47)          | (823)         
|Loss on impairment of investment - Ajay Sports | --            | (3,565)       
|                                               |               |               
|                                               | $       1,321 | $      (1,616)
|                                               |               |               
|Identifiable assets                           
|Vehicle components                             |               | $     24,682  
|Electrical components                          |               | 1,753         
|Corporate                                      |               | 131           
|                                               |               |               
|Total assets - continuing operations           |               | $     26,566  
|                                               |               |               
|Capital expenditures                          
|Vehicle components                             | $        409  | $          854
|Electrical components                          | --            | --            
|                                               |               |               
|Total capital expenditures                     | $        409  | $          854
|                                               |               |               
|Depreciation and amortization                 
|Vehicle components                             | $        472  | $       1,998 
|Electrical components                          | 40            | 145           
|                                               |               |               
|Total depreciation and amortization            | $        512  | $       2,143 
|                                               |               |               

In December 2002, the Company
recorded a $100 gain from the release of escrow funds related to the sale of GeoFocus, the
Companys previously owned global positioning system business and part of the
electrical components segment. The gain has been recorded in other (income) expense on the
accompanying statement of operations for the nine months ended June 30, 2003.

# Note 14. Labor issues
and contingencies

The Companys employees engaged
in the manufacturing of vehicle components in the Portland, Oregon facility are
represented by the International Union, United Automobile Workers of America and
Amalgamated Local 492 (the Union). The five-year contract with the Union
expired on August 31, 2002 and on September 9, 2002 the Union employees engaged in a
strike action, which continues as of the date of this filing. The Company has continued to
negotiate with the Union during the strike; however no agreement on a contract has been
reached. The Company continues to operate the Portland facility with permanent replacement
workers. No significant disruptions of deliveries to customers have occurred during the
strike.

During the course of the strike
action, the Union has filed several unfair labor practice claims. Additionally, on April
11, 2003, the Union presented the Company with an unconditional return to work offer. The
Company has not re-hired the striking workers and continues to operate the Portland
facility with its permanent replacement workers.

On June 2, 2003 the National Labor
Relations Board (NLRB) served the Company with a complaint alleging the
Company has engaged in various unfair labor activities related to the strike. Arguments
were scheduled to be heard by an administrative law judge of the NLRB in late July 2003,
however the NLRB has postponed the hearing date indefinitely.

An ultimate finding of liability on
the unfair labor charges combined with the unconditional return to work offer could result
in the Company being liable for back wages from April 11, 2003 until the Union workers are
returned to work for an undetermined number of Union positions. If the Company has
liability for one or more unfair labor practice charges, the amount for back wages could
be material to the results of operations, financial condition and cash flows of the
Company. We believe that these charges are without merit and will vigorously defend all
such claims, and further the Company believes that the strikers have lost reinstatement
rights as a result of the Unions failure to comply with the mandatory notice
requirements to the Federal Mediation and Conciliation Service and the Oregon State
Conciliation Service.

In March 2003, the Company recorded a
reduction to cost of sales of $112, which is included in the consolidated statements of
operations for the nine months ended June 30, 2003, related to obligations for certain
union employee costs recorded primarily over the first three months of fiscal 2003.

10

On May 12, 2003, Mr. Ziegler, our
former president and chief executive officer, filed suit against the Company, American
Industrial Partners, L.P.; American Industrial Partners Fund III, L.P., and American
Industrial Partners Fund III Corporation in the Circuit Court of the 15th Judicial Circuit
in and for Palm Beach County, Florida. In the suit, Mr. Ziegler alleges that the Company
breached an oral agreement with Mr. Ziegler to pay him additional
compensation, including a bonus of at least $500,000, for certain tasks
performed by Mr. Ziegler while he was the Companys president and chief executive
officer and seeks additional compensation to which he claims he is entitled. The Company
disputes the existence of an agreement and any liability to Mr. Ziegler.

# Note 15. Employee
Benefit Plans

The Companys benefit plans were
audited by the Department of Labor (DOL) during fiscal 2001. The Company
accrued $170 in the first quarter of fiscal 2002 as an estimate of additional liability to
participants of the Companys Employee Stock Ownership Plan (ESOP).
During the fourth quarter of fiscal 2002, the Company made payments totaling $125 into the
Companys ESOP fund at the suggestions of the DOL, and now regards itself in full
compliance with DOL regulations.

In January 2003, the Company froze
the benefits under its Retirement Income Plan. The initial estimate of the curtailment
loss associated with freezing this plan was insignificant.

# Note 16. Employment
Agreements

In January 2003, the Company entered
into employment agreements with its three executive vice presidents. Each contract is for
a term of four years beginning October 1, 2002 and specifies an initial base salary per
year, plus bonus based on parameters established by the board of directors. The agreements
also provide for a one-year severance payment under certain circumstances in the event the
Company terminates the agreements prior to the end of the contract period.

# Note 17. Subsequent
Events

On July 31, 2003, a meeting of the
Companys Board of Directors (BOD) was held. At this meeting, the BOD
approved the grant of 250,000 stock options under the 1993 Stock Option Plan to each of
the four executive management members. Each grant shall have a term of five years with 20%
vesting each year, with the first vesting on September 30, 2003 and an exercise price of
$.66 per share, which is not less than the fair market value of the Companys common
stock at the date of grant. The BOD also authorized the grant of 10,000 stock options
under the 1995 Non Employee Director Stock Option Plan to each of the three members of the
BOD elected by the common and preferred shareholders, voting as a single class, at an
exercise price equal to 100% of the fair market value of the Companys common stock
at the date of grant. The BOD also authorized the sale and issuance of 3,600 total shares
of Series B Preferred Stock at a per share price of $100 to the four executive management
members.

11

# Williams Controls, Inc.

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

# Overview

We have a significant portion of the
United States market for electronic throttle controls systems (ETCs) for
heavy trucks and busses and a minor portion of the international markets for the same
products. We sell the majority of these products directly to large original equipment
manufacturers such as Freightliner, Volvo, Navistar and Paccar. We also sell our products
through a network of independent distributors who sell to smaller original equipment
manufacturers and to truck and bus owners as replacement parts. We also manufacture
pneumatic and air control systems for the diesel heavy truck, transit bus and off-highway
vehicles market. Many of the customers for these products are the same customers as for
our diesel heavy truck and transit bus electronic throttle control systems.

The demand for electronic throttle
control systems is expanding into smaller trucks, diesel-powered pick-up trucks,
automobiles and off-highway vehicles as the major automotive manufacturers and off-highway
vehicle producers are beginning to convert gasoline-powered vehicles to electronic
throttle control systems. Demand for electronic throttle controls will depend, in part, on
how quickly these manufacturers proceed with the ongoing engine modifications needed to
use such systems.

To date, the Company has supplied a
limited number electronic throttle controls to Ford Motor Company and General Motors. Of
the total fiscal 2002 revenues of $52.5 million, sales to Ford and General Motors were
approximately $5 million and were expected to increase as further passenger car and light
truck lines with ETCs were introduced. On June 30, 2003, the Company announced that
it had completed a review of its strategic direction. As a result of that review, the
Company will focus on supplying electronic throttle controls for heavy truck and transit
busses, where it is a leading supplier of these products, and for emerging recreational
and off-road products, and the Company will be seeking to divest its passenger car and
light truck ETC product lines. We also manufacture sensors that we use in our automotive
and a limited number of our heavy truck electronic throttle controls. We anticipate, as
part of our new strategic direction, that we will also divest our sensor product lines.

# Critical Accounting
Policies and Estimates

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

Impairment of Long-Lived
Assets

We account for the impairment of
long-lived assets in accordance with FASB Statement No. 144 (SFAS 144). We test for
impairment when factors indicate that the asset may not be recoverable from future
undiscounted cash flows and calculate the amount of impairment using discounted cash
flows. Estimates of future cash flows require judgment and may change based on, among
other things, the market for our products, technology advances, and customer
relationships. For the three and nine months ended June 30, 2003, there was no impairment
of long-lived assets. As discussed above, the Company has announced an intent to divest
its passenger car and light truck ETC product lines. The Company in accordance with SFAS
144 has evaluated for impairment its long-lived assets as of June 30, 2003 considering all
assets as held in use and no impairment charge was required. The assets associated with
the passenger car and light truck ETC product lines may, in the fourth quarter of fiscal
year 2003, meet the criteria of assets held for sale as defined by SFAS 144. This
classification could result in an impairment loss being recorded in the fourth quarter of
fiscal year 2003.

Warranty and Product
Recall

We provide a warranty covering
defects arising from products sold. We have established a warranty reserve based on
historical return rates of products. In January 2003, the Company was notified of higher
than normal warranty claims on one of its electronic throttle control systems by one
customer. Management is currently working with this customer to repair the defective part.
Management estimates that the total potential units involved is no more that 30,000 and in
the second quarter of fiscal 2003 recorded an accrual of $985 for the estimated cost of
the repairs. All units that were in the customers inventory have been returned or
replaced. The remaining possible defective parts are installed on vehicles and vehicle
owners will be notified that the parts should be replaced. At June 30, 2003, the accrual
related to this matter was $890.

12

In addition, the Company issued a
product recall in late fiscal year 2001. We recorded a reserve for this product recall
based on estimates of the number of units to be returned and the estimated costs of
repair. At June 30, 2003, the product recall accrual was $53. All of the units that were
in distributors inventories have been returned and replaced. The remaining possible
defective units are installed on vehicles, and will be replaced if and when they fail.

The provisions for warranty requires
the use of estimates about the future rates of returns and costs and such estimates are
subject to change, which could be material.

Pensions and
Post-retirement Benefit Obligations

We account for pensions and
post-retirement benefits in accordance with FASB Statement No. 87 and FASB Statement No.
106. FASB Statement No. 87 requires the Company to calculate its pension expense and
liabilities using actuarial assumptions, including a discount rate assumption and a
long-term asset rate return assumption. Changes in interest rates and market performance
can have a significant impact on the Companys pension expense and future payments.
FASB Statement No. 106 requires the Company to accrue the cost of post-retirement benefit
obligations. The accruals are based on interest rates and the costs of health care.
Changes in interest rates and health care costs could impact post-retirement expenses and
future payments. The Company will revise its assumptions in the fourth quarter of fiscal
year 2003 and expects a reduction in the discount rate, which will increase our minimum
pension liability and result in an increase in other comprehensive loss.

Results of Operations  Three
months ended June 30, 2003 compared to the three months ended June 30, 2002.

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

|                                                      | Three Months EndedJune 30,
|----------------------------------------------------- | --------------------------
|
|Net sales                                             | 100.0%                    
|Cost of sales                                         | 77.0                      
|                                                      |                           
|                                                      |                           
|Gross margin                                          | 23.0                      
|                                                      |                           
|Operating expenses (income):                         
|Research and development                              | 7.7                       
|Selling                                               | 2.8                       
|Administration                                        | 9.3                       
|                                                      |                           
|Total operating expenses                              | 19.8                      
|                                                      |                           
|Income from continuing operations                     | 3.2                       
|                                                      |                           
|Interest income                                       | --                        
|Interest expense                                      | 0.8                       
|Other income, net                                     | (0.2)                     
|                                                      |                           
|                                                      |                           
|Income from continuing operations before income taxes | 2.6                       
|Income tax benefit                                    | --                        
|                                                      |                           
|                                                      |                           
|Net income from continuing operations                 | 2.6%                      
|                                                      |                           

Net Sales

Net sales decreased $833 or 6.2% to
$12,634 in the third quarter of fiscal 2003 from $13,467 in the third quarter of fiscal
2002. The decrease in net sales is primarily due to a decrease in sales volumes of our
electronic throttle control systems to both our heavy truck and transit bus customers and
our automotive, pneumatic and air control systems and electrical components customers.
Sales to the heavy truck and transit bus customers decreased $449 or 3.9% for the three
months ended June 30, 2003 compared to the three months ended June 30, 2002. Sales of
automotive electronic throttle control systems decreased $447 or 25.9% for the three
months ended June 30, 2003 compared to the three months ended June 30, 2002, primarily due
to elimination of sales for the Dodge Viper program, which was completed in the fourth
quarter of fiscal 2002 and a significant decrease in Ford electronic throttle control
system sales, due to product change overs to new models.

13

Gross margin

Gross margin was $2,903, or 23.0% of
net sales in the third quarter of 2003, a decrease of $1,077 compared to the gross margin
of $3,980, or 29.6% of net sales, in the comparable fiscal 2002 period.

Electronic throttle control system
sales for heavy trucks and transit busses, which accounted for 87.9% of net sales for the
three months ended June 30, 2003, showed a decrease in gross margin of 5.6% from 28.3% of
net sales during the three months ended June 30, 2003 compared to 33.9% of net sales
during the comparable period of fiscal 2002. The decrease in gross margin for heavy trucks
and transit busses is mainly due to an increase of cost of sales due to an increase of
overhead costs of approximately $330, which primarily consist of costs related to the
strike. In addition, during the third quarter of 2003, the Company experienced several
inefficiencies in production including providing replacement kits for defective parts. The
Company does not expect these inefficiencies to continue into the next quarter. Included
in gross margin for the three months ended June 30, 2002 is a reduction of warranty costs
of $200 for a previously provided product recall reserve.

The overall decrease in gross margin
for the three months ended June 30, 2003 also includes a decrease in gross margin for
sales of electronic throttle control systems for automotive customers. Automotive
electronic throttle control system sales, which accounted for 10.1% of the net sales for
the three months ended June 30, 2003, had negative margin for the three months ended June
30, 2003 of (19.3%) of net sales compared to positive gross margin of 0.9% of net sales
during the comparable period of fiscal 2002. The decrease in margin for automotive
electronic throttle control systems is primarily due to an increase in direct material
costs, scrap, labor costs due to start-up problems associated with numerous contracts and
the elimination of sales for the Dodge Viper program.

Operating expenses

Operating expenses were $2,501 for
the three months ended June 30, 2003 compared to $2,659 for the three months ended June
30, 2002, a decrease of $158 or 5.9%. Operating expenses as a percentage of net sales,
were 19.8% for both the third fiscal quarter of 2003 and the third fiscal quarter of 2002.

Research and development expenses
increased $119 or 13.9% to $975 for the third fiscal quarter of 2003 compared to $856 for
the comparable period in 2002. The largest factor in higher research and development
expenses was a $94 increase in research and development spending for automotive electronic
throttle control systems, mainly due to a new project. The Companys research and
development expenditures will fluctuate based on the products under development at any
given point in time.

Administration expenses for the three
months ended June 30, 2003 of $1,173 were lower than the $1,443 for the same fiscal period
in 2002, a reduction of $270 or 18.7%. This decrease is primarily due to decreases in
administration expenses for the corporate office, which decreased $301 or 33.5% during the
three months ended June 30, 2003 compared to the comparable period in fiscal 2002, and is
attributable to a reduction in legal costs. In addition, the three months ended June 30,
2002 included a $250 fee to a former investment advisor.

Interest Expense

Interest expense increased $172 to
$99 in the third quarter of fiscal 2003 from $(73) in the third quarter of fiscal 2002.
Excluding the impact of the gain on settlement of interest payable of $720 discussed in
Note 9 of Notes to the Consolidated Financial Statements, interest expense decreased $548.
This reduction is the result of overall reduced interest rates and reduced debt levels
resulting from the receipt of cash proceeds associated with the recapitalization
transaction discussed in Note 8 of Notes to the Consolidated Financial Statements.

Income Taxes

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

14

During July 2002, the Company
received a refund of $276 on federal income taxes from the 1996 fiscal year and reflected
this amount as an income tax benefit in the three months ended June 30, 2002. This amount
was offset by payments made for certain state taxes during 2002. The refund was due to a
recent change in the tax law, which allowed the Company to carry back certain net
operating losses five years as opposed to two.

Net income allocable to
common shareholders

Net loss allocable to common
shareholders decreased to a loss of $373 for the three months ended June 30, 2003 compared
to income of $1,274 in the comparative prior year period. There were higher gross margins
and an income tax benefit for the three month period ended June 30, 2002 when compared to
the same period of fiscal 2003. The 2003 period also included the higher accrual of
dividends on preferred stock due to the recapitalization transaction in July 2002.

Results of Operations  Nine
months ended June 30, 2003 compared to the nine months ended June 30, 2002.

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

|                                                             | Nine Months EndedJune 30,
|------------------------------------------------------------ | -------------------------
|
|Net sales                                                    | 100.0%                   
|Cost of sales                                                | 78.5                     
|                                                             |                          
|                                                             |                          
|Gross margin                                                 | 21.5                     
|                                                             |                          
|Operating expenses (income):                                
|Research and development                                     | 7.2                      
|Selling                                                      | 2.8                      
|Administration                                               | 9.6                      
|Loss on impairment of investment - Ajay                      | --                       
|Gain on settlement with customer                             | (2.5)                    
|                                                             |                          
|Total operating expenses                                     | 17.1                     
|                                                             |                          
|Income (loss) from continuing operations                     | 4.4                      
|                                                             |                          
|Interest income                                              | --                       
|Interest expense                                             | 1.1                      
|Other income, net                                            | (0.4)                    
|                                                             |                          
|                                                             |                          
|Income (loss) from continuing operations before income taxes | 3.7                      
|Income tax benefit                                           | 0.8                      
|                                                             |                          
|                                                             |                          
|Net income (loss) from continuing operations                 | 4.5%                     
|                                                             |                          

Net Sales

Net sales increased $186 or 0.5% to
$37,919 in the first nine months of fiscal 2003 from $37,733 in the first nine months of
fiscal 2002. The increase in net sales is primarily due to a significant increase in sales
volumes of our electronic throttle control systems to our heavy truck and transit bus
customers, which is offset by lower sales volumes of our automotive electronic throttle
control systems, pneumatic and air control systems and electrical components. Sales for
the nine months ended June 30, 2003 to the heavy truck and transit bus customers increased
$1,839 or 5.7% compared to the same period in fiscal 2002. Sales of automotive electronic
throttle control systems decreased $1,684 or 33.7% for the nine months ended June 30, 2003
compared to the nine months ended June 30, 2002, primarily due to elimination of sales for
the Dodge Viper program, which was completed in the fourth quarter of fiscal 2002 and a
decrease in Ford electronic throttle control system sales, due to product change overs to
new models.

Gross margin

Gross margin was $8,156, or 21.5% of
net sales in the first nine months of 2003, a decrease of $2,005 compared to the gross
margin of $10,161, or 26.9% of net sales, in the comparable fiscal 2002 period.

15

Gross margins as a percentage of
sales for heavy trucks and transit busses, which accounted for 90.0% of net sales for the
nine months ended June 30, 2003, showed a decrease of 4.3% from 31.4% of net sales during
the nine months ended June 30, 2002 compared to 27.1% of net sales during the comparable
period in fiscal 2003. The decrease in gross margin for heavy trucks and transit busses is
directly attributable to the Company recording a $985 warranty accrual in cost of sales
related to product issues with one customer, as described in Note 11 of the Notes to the
Consolidated Financial Statements. This decrease is offset by the Company recording a $181
reduction in cost of sales related to its assessment of the remaining obligation for the
product recall accrual also described in Note 11. The Company also recorded a $163
reduction of cost of sales related to the settlement of warranty product recall costs as
described in Note 9 of the Notes to the Consolidated Financial Statements. In addition
during the second quarter of 2003, a reduction of cost of sales of $112 was recorded
related to the Companys obligations for certain union employee costs. The decrease
in gross margin for heavy trucks and transit busses also includes an increase in cost of
sales due to an overall increase of overhead costs, which primarily consisted of increases
in strike costs. Included in cost of sales for the nine months ended June 30, 2002 is a
$200 reduction in previously provided product recall reserve. Without the significant
items noted above, gross margins for heavy trucks and transit busses would have been 28.7%
of net sales for the nine months ended June 30, 2003 and 30.8% of net sales for the nine
months ended June 30, 2002, resulting in an overall decrease of 2.1% compared to the same
fiscal period in 2002.

In addition to the decrease in gross
margins for heavy trucks and transit busses, the automotive electronic throttle control
system sales also showed a decrease in gross margin. Automotive electronic throttle
control system sales, which accounted for 8.7% of net sales for the nine months ended June
30, 2003, had negative margin for the nine months ended June 30, 2003 of 33.4% of net
sales compared to negative margin of 4.2% of net sales during the comparable period of
fiscal 2002. The increase in negative margin for automotive electronic throttle control
systems is primarily due to an increase in direct material costs, scrap, labor costs due
to start-up problems associated with numerous contracts and the elimination of sales for
the Dodge Viper program.

Operating expenses

Operating expenses were $6,489 for
the nine months ended June 30, 2003 compared to $11,777 for the nine months ended June 30,
2002, a decrease of $5,288 or 44.9%. Operating expenses as a percentage of net sales, were
17.1% for the first nine months of 2003, which were lower than the 31.2% for the first
nine months of 2002.

The Company recorded an impairment
loss of $3,565 related to its investment in and note receivable from Ajay in the second
quarter of fiscal year 2002. This impairment loss was recorded based on the Company
evaluating the realization of its investment in and note receivable from Ajay and
determining through this assessment that the Companys interests had been impaired.
This amount has been reflected as a separate line Loss on impairment of investment
 Ajay within operating expenses of the consolidated statements of operations
for the nine months ended June 30, 2002.

In January 2003, the Company reached
a settlement with a prior customer on a cancelled supply contract from 1999. Under the
terms of the settlement, the Company would receive $900, of which $800 was received in
January with the remaining balance being received in May 2003. Also included in this
settlement was the waiver of an accounts payable obligation with a certain customer. The
amount recorded for this obligation was $51. Based on this obligation being waived, this
amount is included in the overall gain recognized from this settlement. The entire gain of
$951 is reflected as a separate line Gain from settlement with customer within
operating expenses of the consolidated statements of operations for the nine months ended
June 30, 2003.

Of the remaining operating expenses,
research and development, selling and administration costs were $7,440 or 19.6% of net
sales for the nine months ended June 30, 2003 compared to $8,212 or 21.8% of net sales for
the corresponding nine months in fiscal 2002.

Research and development expenses
increased $211 or 8.4% to $2,726 for the first nine months of 2003 compared to $2,515 for
the comparable period in 2002. The increase in research and development spending is mainly
due to an increase in spending for the heavy truck and transit bus electronic throttle
control systems, which increased $169 to $1,574 for the nine months ended June 30, 2003
compared to $1,405 for the first nine months of fiscal 2002. The Companys research
and development expenditures will fluctuate based on the products under development at any
given point in time.

16

Administration expenses for the nine
months ended June 30, 2003 of $3,654 were lower than the $4,735 for the same fiscal period
in 2002, a reduction of $1,081 or 22.8%. This decrease is primarily due to significant
decreases in administration expenses for both the Corporate office and the automotive
electronic throttle control systems product line. Administration expenses for Corporate
decreased $551 or 22.7% during the first nine months of fiscal 2003 compared to the first
nine months of fiscal 2002. This decrease is attributable to significant reductions in
payroll and legal expenses in the current year due to the completion of the
recapitalization transaction, which is discussed in Note 8 in the Notes to Consolidated
Financial Statements and a fee of $250 for a former investment advisor included in the
nine months ended June 30, 2002. During the nine months ended June 30, 2002, the Company
also entered into a settlement with the Department of Labor regarding certain of its
employee benefit plans. As part of this settlement, the Company recorded $170 in expenses
related to the Companys ESOP Plan. The recording of this expense is part of the
overall decrease of administrative expenses from fiscal 2002 to fiscal 2003 and at this
time the Company does not expect to incur any additional expenses related to the
settlement with the Department of Labor. Administrative expenses also decreased
approximately $541 or 42.8% during the nine months ended June 30, 2003 because of a
reduction in personnel and the consolidation of our Florida operations into one facility
in Sarasota, Florida.

Interest Expense and
Other Income

Interest expense decreased $1,073 or
71.4% to $426 in the first nine months of fiscal 2003 from $1,499 in the first nine months
of fiscal 2002. Excluding the impact of the gain on settlement of interest payable of $720
discussed in Note 9 of Notes to the Consolidated Financial Statements, interest expense
decreased $1,791. This reduction is the result of overall reduced interest rates and
reduced debt levels resulting from the receipt of cash proceeds associated with the
recapitalization transaction discussed in Note 8 of Notes to the Consolidated Financial
Statements.

Other income increased $119 to $160
for the nine months ended June 30, 2003 from $41 in the first nine months of fiscal 2002.
This increase is primarily due to recording a $100 gain from the release of escrow funds
related to the sale of GeoFocus as described in Note 13 in the Notes to Consolidated
Financial Statements.

Income Taxes

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

A tax benefit of $300 was recorded in
the nine months ended June 30, 2003 resulting from filing an amended federal 1998 tax
return in the first quarter of fiscal 2003. During July 2002, the Company received a
refund of $276 on federal income taxes from the 1996 fiscal year and reflected this amount
as an income tax benefit for both the three and nine months ended June 30, 2002. This
amount was offset by payments made for certain state taxes during 2002. The refund was due
to a recent change in the tax law, which allowed the Company to carry back certain net
operating losses five years as opposed to two.

Discontinued Operations

As of September 30, 2001, the Company
had recorded on its consolidated balance sheet $417 related to a mortgage payable on a
building of the Agricultural Equipment segment. The buildings carrying value was $0
at September 30, 2001. During the first quarter of fiscal 2002 the mortgage holder sold
the building at auction for approximately the mortgage value and completely and fully
released the Company from the mortgage. The Company recognized a gain from discontinued
operations for the nine month period ended June 30, 2002 of $417 related to the
satisfaction of the mortgage. Since the estimated fair value of the building was equal to
or greater than the debt, the gain was recorded as a gain on sale of building from
discontinued operations.

During the second quarter of fiscal
2003, the Company settled a lease obligation of its previously discontinued Kenco Williams
business. A gain of $120 resulted from this settlement, which has been recorded in
discontinued operations for the nine months ended June 30, 2003 on the accompanying
statement of operations.

17

Net income allocable to
common shareholders

Net loss allocable to common
shareholders decreased to a loss of $164 for the nine months ended June 30, 2003 compared
to a loss of $3,308 in the comparative prior year period. There were significantly higher
interest expense and operating expenses for the nine month period ended June 30, 2002 when
compared to the same period of fiscal 2003. Excluding the loss on impairment of investment
for Ajay of $3,565 and the gain on sale of building from discontinued operations of $417,
the net loss allocable to common shareholders for the first nine months of fiscal 2002
would have been $160. The first nine months of fiscal 2003 also included a higher accrual
of dividends on preferred stock due to the recapitalization transaction in July 2002.

# Financial Condition,
Liquidity and Capital Resources

At June 30, 2002, we were
experiencing a significant lack of liquidity and, prior to the recapitalization
transaction, we had a significant amount of past due vendor debt and were on C.O.D or
prepayment terms with virtually all of our suppliers of goods and services. The
recapitalization plan has allowed us to address these issues and create borrowing capacity
under our revolving credit line with our lender to meet our cash needs in the foreseeable
future. We have returned to normal credit terms with essentially all of our suppliers. We
do not anticipate any material future supply disruptions similar to those we suffered
previously.

During the first nine months of
fiscal 2003, net cash provided by operating activities was $3,011 compared with cash used
of $272 in the first nine months of fiscal 2002. Cash flows from operations improved
through net income of $1,844 compared to a net loss of $2,426 for the nine months ended
June 30, 2002. This increase in cash flows from higher earnings in the first nine months
of fiscal 2003 is offset by a reduction in amortization of $858 due to a decrease in bank
fees and debt costs and a non-cash loss of $3,565 from the impairment of investment with
Ajay. For the nine months ended June 30, 2003, there was an overall increase in cash
generated from net changes in operating assets and liabilities. The Company generated cash
of $256 from net changes in operating assets and liabilities in the nine months ended June
30, 2003, compared to a cash use of $2,372 from net changes in operating assets and
liabilities in the same period ended June 30, 2002. This increase in cash from net changes
in operating assets and liabilities is primarily due to increased collections on accounts
receivable and an increase in the Companys long-term pension obligation. Both of
these increases are offset by reductions in accounts payable and increases in inventory
balances.

Cash used in investing activities was
$1,081 for the nine months ended June 30, 2003 compared to a cash use of $809 for the nine
months ended June 30, 2002. The cash used position for the first nine months of fiscal
2003 relates to purchases of equipment of $1,099 offset by proceeds of $18 from the sale
of assets and from collection of note receivables. The cash used position for the first
nine months of fiscal 2002 relates to purchases of equipment of $854 offset by proceeds of
$45 from the sale of assets.

Cash used in financing activities was
$1,899 for the nine months ended June 30, 2003 compared to cash provided by financing
activities of $1,081 for the nine months ended June 30, 2002. The change was primarily due
to the prepayment of $2,139 of subordinated debt in fiscal 2003 compared to net borrowings
in the first nine months of fiscal 2002. Cash provided by financing activities for the
nine months ended June 30, 2002 also included a $618 net change in book overdraft.

At June 30, 2003, our contractual
obligations consist of bank debt, notes payable, capital leases, and operating lease
commitments. We do not have any material letters of credit, purchase commitments, or debt
guarantees outstanding at June 30, 2003. Maturities of these contractual obligations
consist of the following:

|     | Bank Debt andNotes Payable | Capital Leases | OperatingLeases
|---- | -------------------------- | -------------- | ---------------
|2003 | $4,357                     | $   92         | $   88         
|2004 | 580                        | 60             | 212            
|2005 | 280                        | 59             | 47             
|2006 | 280                        | 30             | 26             
|2007 | 210                        | --             | 4              
|     |                            |                |                
|     | $5,707                     | $  241         | $  377         

The Company also has mandatory
redeemable convertible preferred stock, which is mandatorily redeemable on July 1, 2009
for $15,000 plus accrued dividends.

18

Due to the reduction in interest
rates and reduction in the fair value of assets, cash payments to fund our pension
obligation increased significantly in fiscal 2003. However, we have $3,841 available under
our revolving credit facility at June 30, 2003 plus cash at June 30, 2003 of $860, and we
believe this availability along with cash provided by operations will be sufficient to
meet our working capital needs on a short-term and long-term basis.

Included in the accompanying
consolidated balance sheet is $1,626 of old accounts payable related to closed insolvent
subsidiaries of the Company. Management does not believe they will ultimately have to pay
the full amount of these payables.

# Recent FASB
Pronouncements

In May 2003, the FASB issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. This statement establishes standards for how certain
financial instruments with characteristics of both liabilities and equity are classified
and measured. The provisions of this statement are effective at the beginning of the first
interim period beginning after June 15, 2003, which will be the period ending September
30, 2003 for the Company. The Company is assessing the effect of SFAS No. 150 and expects
that it is probable that the Company will need to record its mandatory redeemable Series B
Preferred Stock as a liability in the Consolidated Balance Sheet and reflect dividends as
interest expense.

In June and August 2001, the FASB
issued SFAS No.s 143 and 144, Accounting for Asset Retirement
Obligations and Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 143 requires the Company to record the fair value of an asset
retirement obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that result from the
acquisition, construction, development and/or normal use of the assets. We also record a
corresponding asset that is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation will be adjusted at
the end of each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. SFAS No. 144 amends SFAS No. 121 but retains many of
its fundamental provisions and provides a single accounting model for long-lived assets to
be disposed of. SFAS No. 144 also changes the criteria for classifying an asset as
held-for-sale and broadens the scope of businesses to be disposed of that qualify for
reporting as discontinued operations and changes the timing of recognizing losses on such
operations. These statements are effective for our fiscal year ended 2003. The adoption of
SFAS No. 143 and No. 144 did not have an impact on our financial position or results of
operations.

In June 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
This statement nullifies Emerging Issues Task Force Issue No. 94-3 (Issue 94-3),
Liability Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146
requires that a liability for a cost associated with an exit or disposal activity is
recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost
as defined in Issue 94-3 was recognized at the date of an entitys commitment to an
exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities
that are initiated after December 31, 2002.

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an amendment to SFAS No. 123. This statement amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in
both the annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported results.
The Company adopted the disclosure provisions of this statement in the second quarter of
fiscal 2003.

19

# Item 3. Quantitative and
Qualitative Disclosures About Market Risk

The Company has $5,693 in short and
long-term debt, held by its bank, with interest rates that change in accordance with the
terms of the relevant debt instruments. As a result, the Company may be exposed to risks
associated with future interest rate changes on its debt. The Company does not believe
that a hypothetical 10 percent change in end of period interest rates would have a
material effect on the Companys cash flow.

# Item 4. Controls and
Procedures

Evaluation of Disclosure
Controls and Procedures

The Companys Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the
Companys disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Act)), have concluded that as of June 30, 2003, to the best of their
knowledge, the Companys disclosure controls and procedures were effective and
designed to reasonably ensure that (a) material information relating to the Company and
the Companys consolidated subsidiaries is accumulated and communicated to them, and
(b) information required to be disclosed by the Company in the reports that it files or
submits under the Act is recorded, processed, summarized and reported, within the required
time periods.

Changes in Internal
Controls

There have not been any significant
changes in the Companys internal controls over financial reporting or in other
factors that could significantly affect those controls subsequent to the Evaluation Date,
including any corrective actions with regard to significant deficiencies and material
weaknesses.

20

# Part II. Other
Information

# Item 1. Legal Proceedings

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

On May 12, 2003, Mr. Ziegler, our
former president and chief executive officer, filed suit against the Company, American
Industrial Partners, L.P.; American Industrial Partners Fund III, L.P., and American
Industrial Partners Fund III Corporation in the Circuit Court of the 15th Judicial Circuit
in and for Palm Beach County, Florida. In the suit, Mr. Ziegler alleges that the Company
breached an oral agreement with Mr. Ziegler to pay him additional compensation, including
a bonus of at least $500,000, for certain tasks performed by Mr. Ziegler while
he was the Companys president and chief executive officer and seeks additional
compensation to which he claims he is entitled. The Company disputes the existence of an
agreement and any liability to Ziegler.

On June 2, 2003 the National Labor
Relations Board (NLRB) served the Company with a complaint alleging the
Company has engaged in various unfair labor activities related to the strike. Arguments
were scheduled to be heard by an administrative law judge of the NLRB in late July 2003,
however the NLRB has postponed the hearing date indefinitely. An ultimate finding of
liability on the unfair labor charges could result in the Company being liable for back
wage to the Union workers. If the Company has liability for one or more unfair labor
practice charges, the amount for back wages could be material to the results of
operations, financial condition and cash flows of the Company. We believe that these
charges are without merit and will vigorously defend all such claims, and further the
Company believes that the strikers have lost reinstatement rights as a result of the
Unions failure to comply with the mandatory notice requirements to the Federal
Mediation and Conciliation Service and the Oregon State Conciliation Service.

# Item 2. Changes in
Securities and Use of Proceeds

None

# Item 3. Defaults Upon
Senior Securities

None

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

None

# Item 5. Other Information

None

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

(a)      Exhibits

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

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

21

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

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

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

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

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

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

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

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

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

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

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

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

| | 32.1 |  | Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 |  | Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)                 Reports
on Form 8-K

| | A
Current Report on Form 8-K was filed on June 2, 2003 reporting under Item 5  Other
Events, that the National Labor Relations Board (NLRB) served Williams
Controls, Inc. with a complaint alleging the Company has engaged in various unfair labor
activities related to the strike.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

# SIGNATURES

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

|                       |  | WILLIAMS CONTROLS, INC.                                                     
|---------------------- |  | ----------------------------------------------------------------------------
|                       |  |                                                                             
|                       |  |                                                                             
|Date:  August 14, 2003 |  | /s/ R. EUGENE GOODSON                                                       
|                       |  | R. Eugene GoodsonChairman of the Board, Presidentand Chief Executive Officer
|                       |  |                                                                             
|                       |  |                                                                             
|                       |  | /s/ DENNIS E. BUNDAY                                                        
|                       |  | Dennis E. BundayChief Financial Officer                                     

23

Exhibit 31.1

# CERTIFICATION OF CHIEF
EXECUTIVE OFFICER
REQUIRED BY RULE 13a-14(a) or RULE 15d-14(a)

I, R. Eugene Goodson, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Williams Control, Inc.;
|-- | -----------------------------------------------------------------------------

|2. | Based on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the registrant as of, and
          for, the periods presented in this quarterly report;
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | Designed such disclosure controls and procedures, or caused such disclosure
               controls and procedures to be designed under our supervision, to ensure that
               material information relating to the company, including its consolidated
               subsidiaries, is made known to us by others within those entities, particularly
               during the period in which this quarterly report is being prepared;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Evaluated the effectiveness of the companys disclosure controls and
               procedures and presented in this report our conclusions about the effectiveness
               of the disclosure controls and procedures, as of the end of the period covered
               by this report based on such evaluation; and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | Disclosed in this report any change in the companys internal control over
               financial reporting that occurred during the period covered by the annual report
               that has materially affected, or is reasonably likely to materially affect, the
               companys internal control over financial reporting; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The companys other certifying officer(s) and I have disclosed, based on
          our most recent evaluation of internal control over financial reporting, to the
          companys auditors and the audit committee of the companys board of
          directors (or persons performing the equivalent functions):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | All significant deficiencies and material weaknesses in the design or operation
               of internal control over financial reporting which are reasonably likely to
               adversely affect the companys ability to record, process, summarize and
               report financial information; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Any fraud, whether or not material, that involves management or other employees
               who have a significant role in the companys internal control over
               financial reporting.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       |  |                                          | 
|---------------------- |  | ---------------------------------------- | 
|                       |  |                                         
|Date:  August 14, 2003 |  | /s/ R. EUGENE GOODSON                    | 
|                       |  | R. Eugene GoodsonChief Executive Officer | 

Exhibit 31.2

# CERTIFICATION OF CHIEF
FINANCIAL OFFICER
REQUIRED BY RULE 13a-14(a) or RULE 15d-14(a)

I, Dennis E. Bunday, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Williams Control, Inc.;
|-- | -----------------------------------------------------------------------------

|2. | Based on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the registrant as of, and
          for, the periods presented in this quarterly report;
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | Designed such disclosure controls and procedures, or caused such disclosure
               controls and procedures to be designed under our supervision, to ensure that
               material information relating to the company, including its consolidated
               subsidiaries, is made known to us by others within those entities, particularly
               during the period in which this quarterly report is being prepared;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Evaluated the effectiveness of the companys disclosure controls and
               procedures and presented in this report our conclusions about the effectiveness
               of the disclosure controls and procedures, as of the end of the period covered
               by this report based on such evaluation; and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | Disclosed in this report any change in the companys internal control over
               financial reporting that occurred during the period covered by the annual report
               that has materially affected, or is reasonably likely to materially affect, the
               companyss internal control over financial reporting; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The companys other certifying officer(s) and I have disclosed, based on
          our most recent evaluation of internal control over financial reporting, to the
          companys auditors and the audit committee of the companys board of
          directors (or persons performing the equivalent functions):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | All significant deficiencies and material weaknesses in the design or operation
               of internal control over financial reporting which are reasonably likely to
               adversely affect the companys ability to record, process, summarize and
               report financial information; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Any fraud, whether or not material, that involves management or other employees
               who have a significant role in the companys internal control over
               financial reporting.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       |  |                                         | 
|---------------------- |  | --------------------------------------- | 
|                       |  |                                        
|Date:  August 14, 2003 |  | /s/ DENNIS E. BUNDAY                    | 
|                       |  | Dennis E. BundayChief Financial Officer | 

Exhibit 32.1

# CERTIFICATION OF CHIEF EXECUTIVE OFFICER
REQUIRED BY RULE 13a-14(b) or RULE 15d-14(b)
AND SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002, 18 U.S.C. SECTION 1350

In connection with the Quarterly
Report of Williams Controls, Inc (the Company) on Form 10-Q for the period
ended June 30, 2003 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, R. Eugene Goodson, Chairman of the Board and Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

| | (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the
               Securities Exchange Act of 1934; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The information contained in the Report fairly presents, in all material
               respects, the financial condition and result of operations of the Company.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

/s/ R. EUGENE GOODSONR. Eugene GoodsonChief Executive OfficerWilliams Controls, Inc
August 14, 2003

Exhibit 32.2

# CERTIFICATION OF CHIEF
FINANCIAL OFFICER REQUIRED BY RULE 13a-14(b) or RULE 15d-14(b)
AND SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002, 18 U.S.C. SECTION 1350

In connection with the Quarterly
Report of Williams Controls, Inc (the Company) on Form 10-Q for the period
ended June 30, 2003 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Dennis E. Bunday, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:

| | (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------

/s/ DENNIS E. BUNDAYDennis E. BundayChief Financial
OfficerWilliams Controls, IncAugust 14, 2003