**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**FORM
      10-Q**








**[
      x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
      THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the quarterly period ended: June 30, 2007**





**[    ]
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the transition period from ___________ to ___________**





**Commission
      file number 0-18083**








**Williams
      Controls, Inc.**


(Exact
      name of registrant as specified in its charter)





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




**(503)
      684-8600**


(Registrant's
      telephone number, including area code)





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


Yes  [X]   No  [ 
       ]





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.  (Check one):





Large
      Accelerated Filer
      [   ]                                                                Accelerated
      Filer
      [   ]                                                      Non-Accelerated
      Filer [X]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act)


Yes  [  
      ]   No  [X]





The
      number of shares outstanding of the registrant's common stock


at
      July
      31, 2007: 7,483,010







**Williams
      Controls, Inc.**




**June
      30, 2007**





**Table
      of Contents**




Page
              Number**Part
                I.  Financial Information**Item
                1. Financial Statements (unaudited)Condensed
                Consolidated Balance Sheets, June 30, 2007
                and
              September
                30, 2006
            1Condensed
                Consolidated Statements of Operations, three
                and nine month
              periods
                ended June 30, 2007 and
                2006
            2Condensed
                Consolidated Statements of Cash Flows, nine
                month
              periods
                ended June 30, 2007 and 2006
            3Notes
                to Unaudited Condensed Consolidated Financial
                Statements
            4Item
                2.  Management’s Discussion and Analysis of
                Financial Condition
              and
                Results of Operations
            14Item
                3.  Quantitative and Qualitative Disclosures
                About Market Risk
            23Item
                4.  Controls and
                Procedures
            24**Part
                II.  Other Information**Item
                1.    Legal
                Proceedings
            25Item
                1A.  Risk Factors
            25Item
                2.    Unregistered Sales of
                Equity Securities and Use of Proceeds
            25Item
                3.    Defaults Upon Senior
                Securities
            25Item
                4.    Submission of Matters to
                a Vote of Security Holders
            25Item
                5.    Other
                Information
            25Item
                6.    Exhibits
            25Signature
                Page
            27








**PART
      I – FINANCIAL INFORMATION**





**Item
                1.**
            **Financial
                Statements**




**Williams
      Controls, Inc.**


**Condensed
      Consolidated Balance Sheets**


**(Dollars
      in thousands, except share and per share information)**


**(Unaudited)**





**June
                30,**
              **2007**
            
            
            **September
                30,**
              **2006****ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            3,055
            
            
            $
            2,530Trade
                accounts receivable, less allowance of
              $164
                and $35 at June 30, 2007 and September 30,
              2006,
                respectively
            
            
            7,775
            
            
            
            9,368Other
                accounts receivable
            
            
            1,339
            
            
            
            1,231Inventories
            
            
            9,894
            
            
            
            9,918Deferred
                income taxes
            
            
            657
            
            
            
            657Prepaid
                expenses and other current assets
            
            
            387
            
            
            
            333Total
                current assets
            
            
            23,107
            
            
            
            24,037Property,
                plant and equipment, net
            
            
            8,837
            
            
            
            8,457Deferred
                income taxes
            
            
            2,367
            
            
            
            2,228Other
                assets, net
            
            
            899
            
            
            
            1,027Total
                assets
            
            $
            35,210
            
            
            $
            35,749**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                Liabilities:Accounts
                payable
            
            $
            4,317
            
            
            $
            6,504Accrued
                expenses
            
            
            5,380
            
            
            
            5,528Current
                portion of employee benefit obligations
            
            
            1,610
            
            
            
            1,669Current
                portion of long-term debt
            
            
            1,774
            
            
            
            3,996Total
                current liabilities
            
            
            13,081
            
            
            
            17,697Long-term
                Liabilities:Long-term
                debt
            
            
            2,217
            
            
            
            4,544Employee
                benefit obligations
            
            
            4,213
            
            
            
            4,991Other
                long-term liabilities
            
            
            270
            
            
            
            255Commitments
                and contingenciesStockholders’
                Equity:Preferred
                stock ($.01 par value, 50,000,000 authorized) Series C
              (0
                issued and outstanding at June 30, 2007 and September 30,
              2006)
            
            
            -
            
            
            
            -Common
                stock ($.01 par value, 12,500,000 authorized; 7,483,010
              and
                7,432,844 issued and outstanding at June 30, 2007 and  September
                30, 2006, respectively)
            
            
            75
            
            
            
            74Additional
                paid-in capital
            
            
            34,722
            
            
            
            34,014Accumulated
                deficit
            
            
            (13,993
            )
            
            
            (20,414
            )Treasury
                stock (21,700 shares at June 30, 2007 and September 30,
              2006)
            
            
            (377
            )
            
            
            (377
            )Accumulated
                other comprehensive loss
            
            
            (4,998
            )
            
            
            (5,035
            )Total
                stockholders’ equity
            
            
            15,429
            
            
            
            8,262Total
                liabilities and stockholders’ equity
            
            $
            35,210
            
            
            $
            35,749







See
            accompanying notes to Unaudited Condensed Consolidated Financial
            Statements.
 **1**


**Williams
      Controls, Inc.**


**Condensed
      Consolidated Statements of Operations**


**(Dollars
      in thousands, except share and per share information)**


**(Unaudited)**





**Three
                Month Period Ended**
              **June
                30,**
            
            
            **Nine
                Month Period Ended**
              **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Net
                sales
            
            $
            15,822
            
            
            $
            19,898
            
            
            $
            52,573
            
            
            $
            54,826Cost
                of sales
            
            
            10,117
            
            
            
            12,761
            
            
            
            34,441
            
            
            
            35,543Gross
                profit
            
            
            5,705
            
            
            
            7,137
            
            
            
            18,132
            
            
            
            19,283Operating
                expenses:Research
                and development
            
            
            797
            
            
            
            898
            
            
            
            2,465
            
            
            
            2,560Selling
            
            
            560
            
            
            
            522
            
            
            
            1,653
            
            
            
            1,501Administration
            
            
            1,394
            
            
            
            1,235
            
            
            
            4,049
            
            
            
            4,024Realignment
                of operations
            
            
            210
            
            
            
            269
            
            
            
            643
            
            
            
            393Total
                operating expenses
            
            
            2,961
            
            
            
            2,924
            
            
            
            8,810
            
            
            
            8,478Operating
                income
            
            
            2,744
            
            
            
            4,213
            
            
            
            9,322
            
            
            
            10,805Other
                (income) expense:Interest
                income
            
            
            (34
            )
            
            
            (13
            )
            
            
            (95
            )
            
            
            (53
            )Interest
                expense
            
            
            185
            
            
            
            323
            
            
            
            651
            
            
            
            955Other
                income, net
            
            
            (150
            )
            
            
            (151
            )
            
            
            (1,012
            )
            
            
            (317
            )Total
                other (income) expenses
            
            
            1
            
            
            
            159
            
            
            
            (456
            )
            
            
            585Income
                before income taxes
            
            
            2,743
            
            
            
            4,054
            
            
            
            9,778
            
            
            
            10,220Income
                tax expense
            
            
            919
            
            
            
            1,285
            
            
            
            3,357
            
            
            
            3,486Net
                income
            
            $
            1,824
            
            
            $
            2,769
            
            
            $
            6,421
            
            
            $
            6,734Net
                income per common share – basic
            
            $
            0.24
            
            
            $
            0.37
            
            
            $
            0.86
            
            
            $
            0.91Weighted
                average shares used in per share
              calculation
                – basic
            
            
            7,480,287
            
            
            
            7,422,040
            
            
            
            7,460,170
            
            
            
            7,425,220Net
                income per common share – diluted
            
            $
            0.24
            
            
            $
            0.36
            
            
            $
            0.83
            
            
            $
            0.88Weighted
                average shares used in per share
              calculation
                – diluted
            
            
            7,743,778
            
            
            
            7,650,160
            
            
            
            7,730,619
            
            
            
            7,620,557





See
            accompanying notes to Unaudited Condensed Consolidated Financial
            Statements.
 **2**


**Williams
      Controls, Inc.**


**Condensed
      Consolidated Statements of Cash Flows**


**(Dollars
      in thousands)**


**(Unaudited)**








**Nine
                Month Period**
              **Ended
                June 30,****2007**
            
            
            **2006**Cash
                flows from operating activities:Net
                income
            
            $
            6,421
            
            
            $
            6,734Adjustments
                to reconcile net income to net cash provided by
              operating
                activities:Depreciation
                and amortization
            
            
            1,452
            
            
            
            1,006Deferred
                income taxes
            
            
            (139
            )
            
            
            760Stock
                based compensation
            
            
            413
            
            
            
            346(Gain)
                loss from disposal of fixed assets
            
            
            (71
            )
            
            
            4Changes
                in operating assets and liabilitiesReceivables,
                net
            
            
            1,485
            
            
            
            (738
            )Inventories
            
            
            24
            
            
            
            (3,784
            )Accounts
                payable and accrued expenses
            
            
            (2,246
            )
            
            
            323Other
            
            
            (861
            )
            
            
            (638
            )Net
                cash provided by operating activities
            
            
            6,478
            
            
            
            4,013Cash
                flows from investing activities:Purchases
                of property, plant and equipment
            
            
            (1,693
            )
            
            
            (1,734
            )Proceeds
                from sales of assets
            
            
            82
            
            
            
            -Net
                cash used in investing activities
            
            
            (1,611
            )
            
            
            (1,734
            )Cash
                flows from financing activities:Net
                borrowings on revolving loan facility
            
            
            -
            
            
            
            1,000Payments
                of debt and capital lease obligations
            
            
            (4,549
            )
            
            
            (4,377
            )Repurchase
                of common stock
            
            
            -
            
            
            
            (3,200
            )Net
                proceeds from exercise of stock options
            
            
            207
            
            
            
            216Net
                cash used in financing activities
            
            
            (4,342
            )
            
            
            (6,361
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            525
            
            
            
            (4,082
            )Cash
                and cash equivalents at beginning of period
            
            
            2,530
            
            
            
            5,052Cash
                and cash equivalents at end of period
            
            $
            3,055
            
            
            $
            970Supplemental
                disclosure of cash flow information:Interest
                paid
            
            $
            548
            
            
            $
            816Income
                taxes paid
            
            $
            2,900
            
            
            $
            3,004




See
            accompanying notes to Unaudited Condensed Consolidated Financial
            Statements.
 **3**


**Williams
      Controls, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**Three
      and Nine month periods ended June 30, 2007 and 2006**


**(Dollars
      in thousands, except share and per share amounts)**


**(Unaudited)**





**Note
      1. Organization**





Williams
      Controls, Inc., including its wholly-owned subsidiaries as follows and
      hereinafter referred to as the “Company,” “we,” “our,” or “us.”





**Active
      Subsidiaries*****–*** Williams Controls
      Industries, Inc. ("Williams"); Williams (Suzhou) Controls Co. Ltd. (“Williams
      Controls Asia”); and Williams Controls Europe GmbH (“Williams Controls
      Europe”).





**Inactive
      Subsidiaries*****–*** Aptek Williams, Inc.
      ("Aptek"); Premier Plastic Technologies, Inc. ("PPT"); ProActive Acquisition
      Corporation ("ProActive"); WMCO-Geo, Inc. ("GeoFocus"); NESC Williams, Inc.
      ("NESC"); Williams Technologies, Inc. ("Technologies"); Williams World Trade,
      Inc. ("WWT"); Techwood Williams, Inc. ("TWI"); Agrotec Williams, Inc.
      ("Agrotec") and its 80% owned subsidiaries Hardee Williams, Inc. ("Hardee")
      and
      Waccamaw Wheel Williams, Inc. ("Waccamaw").





**Note
      2. Basis of Presentation**





The
      accompanying unaudited interim condensed consolidated financial statements
      have
      been prepared by the Company and, in the opinion of management, reflect all
      material normal recurring adjustments necessary to present fairly the Company’s
      financial position as of June 30, 2007 and the results of operations and cash
      flows for periods ended June 30, 2007 and 2006.  The results of
      operations for the three and nine month periods ended June 30, 2007 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.  In the opinion of management, when the interim
      consolidated statements are read in conjunction with the September 30, 2006
      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, based upon all known facts and circumstances, that
      affect the reported amounts of assets and liabilities, disclosure 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.  Management makes these estimates using the best information
      available at the time the estimates are made; however, actual results could
      differ materially from these estimates.  Estimates are used in
      accounting for, among other things, pension and post-retirement benefits,
      product warranty, excess and obsolete inventory, allowance for doubtful
      accounts, useful lives for depreciation and amortization, future cash flows
      associated with the evaluation of impairment of long-lived assets, deferred
      taxes, stock options and commitments and contingencies.





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





At
      the
      March 2, 2006 Annual Meeting of stockholders, the stockholders of the Company
      approved a one-for-six reverse stock split for each share of common stock
      outstanding on January 27, 2006.  The Company’s share and per share
      amounts of common stock reflect the effect of the one-for-six reverse stock
      split for all periods presented.  The reverse split was effective
      March 16, 2006.





**Note
      3. Realignment of Operations**





During
      the second quarter of fiscal
      year 2006, the Company announced a plan for realignment of its Portland, Oregon
      manufacturing operations as part of ongoing efforts to focus on its core product
      competencies and improve its global competitiveness.




**4**


The
      realignment plan consists of outsourcing all of the Company’s die casting and
      machining operations to high-quality suppliers, primarily in Asia, and
      relocating of the Company’s assembly operations for the majority of its
      pneumatic products to its manufacturing facility in Suzhou, China.  In
      conjunction with the realignment, the Company has eliminated 33 hourly and
      2
      salaried positions from its Portland, Oregon facility during fiscal 2007 and
      expects to eliminate an additional 17 hourly positions during the remainder
      of
      fiscal 2007.  As part of this realignment plan, the Company will incur
      a one-time termination benefit with those employees affected by the
      realignment.  In accordance with Statement of Financial Accounting
      Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or
      Disposal Activities” and related guidance, a one-time benefit arrangement must
      meet certain criteria in order for a Company to recognize a liability for such
      one-time benefits.  The realignment plan must establish the terms of
      the benefit arrangement, including the benefits that employees will receive
      upon
      termination, in sufficient detail to enable employees to determine the type
      and
      amount of benefits they will receive if they are involuntarily
      terminated.  That determination was reached when the Company began
      negotiations over the effects of the realignment related workforce reductions
      with the United Automobile Workers of America (UAW) during the third quarter
      of
      fiscal 2006, at which time an estimated liability for anticipated termination
      costs began to be recorded.  The Company reached an agreement with the
      UAW regarding the effects of the realignment associated workforce reduction
      on
      April 6, 2007.





The
      Company's preliminary estimates of
      the total costs of the realignment approximate $1.5 million and include
      estimates for costs related to hourly and salaried termination benefits of
      $590;
      supplier and parts qualification of $100; refurbishment of tools of $150;
      accelerated depreciation on certain assets of $240; and general administrative
      and other costs of $400.  Certain of these costs are being classified
      in financial statement line items other than realignment of operations
      expense.  The Company recorded realignment expenses of $210 and $643,
      respectively, for both the three and nine month periods ended June 30, 2007,
      which were recorded in operating expenses in the accompanying condensed
      consolidated statements of operations.  For the three and nine month
      periods ended June 30, 2006, the Company recorded realignment expenses of $269
      and $393, respectively, which were recorded in operating expenses in the
      accompanying condensed consolidated statements of
      operations.  Following is a reconciliation of the changes in the
      Company’s liability accrual related to the employee termination benefits during
      fiscal 2007 and the comparable period in fiscal 2006.





**Three
                month**
              **period
                ended**
              **June
                30, 2007**
            
            
            **Nine
                month**
              **period
                ended**
              **June
                30, 2007**
            
            
            **Three
                month**
              **period
                ended**
              **June
                30, 2006**
            
            
            **Nine
                month**
              **period
                ended**
              **June
                30, 2006**Balance
                at beginning of period
            
            $
            482
            
            
            $
            226
            
            
            $
            -
            
            
            $
            -Payments
            
            
            (207
            )
            
            
            (207
            )
            
            
            -
            
            
            
            -Additional
                accruals
            
            
            94
            
            
            
            350
            
            
            
            129
            
            
            
            129Balance
                at end of period
            
            $
            369
            
            
            $
            369
            
            
            $
            129
            
            
            $
            129





**Note
      4. Accounting for Stock Based Compensation**





In
      the
      first quarter of fiscal year 2006, the Company adopted Statement of Financial
      Accounting Standards (“SFAS”) No. 123R, “Share Based Payment,” which revises
      SFAS No. 123, “Accounting for Stock-Based Compensation.”  Prior to
      fiscal year 2006, the Company accounted for its stock-based compensation plans
      using the intrinsic value-based method under Accounting Principles Board Opinion
      No. 25 (APB 25).  No compensation expense was recorded for stock
      options granted to employees prior to October 1, 2005 under the intrinsic value
      method.





SFAS
      No.
      123R applies to new awards and to awards modified, repurchased, or cancelled
      after the required effective date, as well as to the unvested portion of awards
      outstanding as of the required effective date.  The effective date for
      the Company was October 1, 2005.  The Company uses the Black-Scholes
      option pricing model to value its stock option grants under SFAS No. 123R,
      applying the “modified prospective method” for existing grants which requires
      the Company to value stock options prior to its adoption of SFAS No 123R under
      the fair value method and expense the unvested portion over the remaining
      vesting period.  Stock-based compensation expense is recognized on a
      straight-line basis over the requisite service period, which equals the vesting
      period.  Under SFAS No 123R, the Company is also required to estimate
      forfeitures in calculating the expense related to stock-based
      compensation.  In addition, SFAS No. 123R requires the Company to
      reflect the benefits of tax deductions in excess of recognized compensation
      cost
      to be reported as a financing cash inflow upon adoption.





The
      Company currently has two qualified
      stock option plans.  The Restated 1993 Stock Option Plan (the “1993
      Plan”) reserves an aggregate of 750,000 shares of the Company’s common stock for
      the issuance of stock options, which may be granted to employees, officers
      and
      directors of and consultants to the Company.  Under the terms of the
      1993 Plan, the Company may grant “incentive stock options” or “non-qualified
      options” with an exercise price of not less than the fair market value on the
      date of grant.




**5**


Options
      granted under the 1993 Plan have a vesting schedule, which is typically five
      years, determined by the Compensation Committee of the Board of Directors and
      expire ten years after the date of grant. The non-employee Director Plan (the
      “1995 Plan”) reserves an aggregate of 66,666 shares of the Company’s common
      stock for the issuance of stock options, which may be granted to non-employee
      directors of the Company.  Under this plan the non-employee directors
      are each automatically granted 1,666 options at a price equal to the market
      value on the date of grant which is the date of the annual stockholders’ meeting
      each year, exercisable for 10 years after the date of the
      grant.  These options are exercisable as to 25% of the shares thereby
      on the date of grant and as to an additional 25%, cumulatively on the first,
      second and third anniversaries of the date of grant.





As
      of June 30, 2007, there was $1,469
      of total unrecognized compensation costs related to nonvested stock
      options.  That cost is expected to be recognized over a weighted
      average period of 3.4 years.





For
      the three and nine month periods
      ended June 30, 2007, the Company’s total stock-based compensation expense was
      $136 ($116 net of tax) and $389 ($324 net of tax), respectively.  For
      the three month period ended June 30, 2007, stock-based compensation expense
      was
      recorded in cost of sales and operating expenses in the amounts of $12 and
      $124,
      respectively, in the accompanying consolidated statement of
      operations.  For the nine month period ended June 30, 2007,
      stock-based compensation expense was recorded in cost of sales and operating
      expenses in the amounts of $38 and $351, respectively.





For
      the three and nine month periods
      ended June 30, 2006, the Company’s total stock-based compensation expense was
      $102 ($92 net of tax) and $325 ($286 net of tax), respectively.  For
      the three month period ended June 30, 2006, stock-based compensation expense
      was
      recorded in cost of sales and operating expenses in the amounts of $13 and
      $89,
      respectively, in the accompanying consolidated statement of
      operations.  For the nine month period ended June 30, 2006,
      stock-based compensation expense was recorded in cost of sales and operating
      expenses in the amounts of $37 and $288, respectively.





The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option pricing model with the following weighted average
      assumptions used for grants issued during the nine month periods ended June
      30,
      2007 and 2006.





**Nine
                Month Period**
              **Ended
                June 30,****2007**
            
            **2006**Risk-free
                interest rate
            
            4.55%
            
            4.57%Expected
                dividend yield
            
            0%
            
            0%Expected
                term
            
            6.4
                years
            
            6.3
                yearsExpected
                volatility
            
            84%
            
            88%





The
      Company uses the US Treasury (constant maturity) interest rate on the date
      of
      grant as the risk-free interest rate.  The expected term of options
      granted represents the weighted average period the stock options are expected
      to
      remain outstanding and is calculated using the simplified method under SAB
      107,
      which expresses the view of the SEC Staff regarding interaction between SFAS
      No.
      123R and certain SEC rules and regulations and provides the Staff’s views
      regarding the valuation of share-based payment arrangements for public
      companies.  Expected volatilities are based on the historical
      volatility of the Company’s common stock.





The
      following table summarizes stock options outstanding as of June 30, 2007 as
      well
      as activity during the nine month period then ended.





**Shares**
            
            
            **Weighted
                Average Exercise Price**Outstanding
                at September 30, 2006
            
            
            586,256
            
            
            $
            5.85Granted
            
            
            69,064
            
            
            
            16.41Exercised
            
            
            (42,306
            )
            
            
            4.89Forfeited
            
            
            (25,453
            )
            
            
            8.14Outstanding
                at June 30, 2007
            
            
            587,561
            
            
            
            7.06Exercisable
                at June 30, 2007
            
            
            298,071
            
            
            $
            5.89





**6**


At
      June
      30, 2007, the weighted average remaining contractual term of options outstanding
      and options exercisable was 6.8 years and 6.1 years, respectively.





The
      aggregate intrinsic value of options outstanding and options exercisable at
      June
      30, 2007 was $6,135 and $3,458, respectively (the intrinsic value of a stock
      option is the amount by which the market value of the underlying stock exceeds
      the exercise price of the option).  The aggregate intrinsic value of
      options outstanding and options exercisable at June 30, 2006 was $3,740 and
      $1,476, respectively.  The weighted average grant date fair value of
      stock options granted during the nine month periods ended June 30, 2007 and
      2006
      was $12.18 and $8.22 per share, respectively.  The intrinsic value of
      all stock options exercised during the three and nine month periods ended June
      30, 2007 was $72 and $483, respectively.  The intrinsic value of all
      stock options exercised during the three and nine month periods ended June
      30,
      2006 was $184 and $423, respectively.





**Note
      5. Comprehensive Income**





SFAS
      No.
      130, “Reporting Comprehensive Income," requires companies to report a measure of
      all changes in equity except those resulting from investments by owners and
      distributions to owners.  Total comprehensive income for the three
      month periods ended June 30, 2007 and 2006 was $1,837 and $2,779, respectively,
      and for the nine month periods ended June 30, 2007 and 2006 was $6,458 and
      $6,750, respectively, and consisted of net income and foreign currency
      translation adjustments.  As of June 30, 2007, accumulated other
      comprehensive loss was $4,998 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 and the effect of foreign currency translation
      adjustments.





**Note
      6. Earnings 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
                Month Period Ended**
              **June
                30, 2007**
            
            
            **Three
                Month Period Ended**
              **June
                30, 2006**Income
            
            
            Shares
            
            
            Per
                Share Amount
            
            
            Income
            
            
            Shares
            
            
            Per
                Share AmountBasic
                EPS –
            
            $
            1,824
            
            
            
            7,480,287
            
            
            $
            0.24
            
            
            $
            2,769
            
            
            
            7,422,040
            
            
            $
            0.37Effect
                of dilutive securities –Stock
                options
            
            
            -
            
            
            
            263,491
            
            
            
            
            
            
            
            -
            
            
            
            228,120Diluted
                EPS –
            
            $
            1,824
            
            
            
            7,743,778
            
            
            $
            0.24
            
            
            $
            2,769
            
            
            
            7,650,160
            
            
            $
            0.36





**Nine
                Month Period Ended**
              **June
                30, 2007**
            
            
            **Nine
                Month Period Ended**
              **June
                30, 2006**Income
            
            
            Shares
            
            
            Per
                Share Amount
            
            
            Income
            
            
            Shares
            
            
            Per
                Share AmountBasic
                EPS –
            
            $
            6,421
            
            
            
            7,460,170
            
            
            $
            0.86
            
            
            $
            6,734
            
            
            
            7,425,220
            
            
            $
            0.91Effect
                of dilutive securities –Stock
                options
            
            
            -
            
            
            
            270,449
            
            
            
            
            
            
            
            -
            
            
            
            195,337Diluted
                EPS –
            
            $
            6,421
            
            
            
            7,730,619
            
            
            $
            0.83
            
            
            $
            6,734
            
            
            
            7,620,557
            
            
            $
            0.88





For
      the
      three and nine month periods ended June 30, 2007, the Company had options
      covering 45,246 and 46,912  shares that were not considered in the
      diluted EPS calculation since they would have been antidilutive.  For
      the three and nine month periods ended June 30, 2006, the Company had options
      and warrants covering 43,239 and 61,030 shares, respectively, that were not
      considered in the diluted EPS calculation since they would have been
      antidilutive.





**7**


**Note
      7. Inventories**





Inventories
      consist of the following:




**June
                30,**
              **2007**
            
            
            **September
                30,**
              **2006**Raw
                materials
            
            $
            7,724
            
            
            $
            7,589Work
                in process
            
            
            79
            
            
            
            227Finished
                goods
            
            
            2,091
            
            
            
            2,102$
            9,894
            
            
            $
            9,918





**Note
      8. Patent License Agreements**





During
      fiscal 2003 the Company obtained a license agreement for use of an adjustable
      pedal design for product lines.  This agreement is for a period of
      three years and is renewed annually if certain sales thresholds are
      met.  Effective July 2006, this agreement was extended for one year
      and will automatically be extended for another one year period if certain sales
      thresholds are met.  In July 2007, the Company met the expected sales
      thresholds and the agreement has been automatically extended one year to July
      2008.  The Company is obligated to make royalty payments based on the
      number of units it sells.  During the three and nine month periods
      ended June 30, 2007, the Company sold adjustable pedals and recorded an accrual
      for royalties related to these sales of $2 and $5,
      respectively.  Additionally, the initial license payments of $200 that
      were capitalized will be amortized based on the projection of units sold over
      the next five years.  Based on these projections, the Company
      anticipates amortizing five and a half dollars for every adjustable pedal
      sold.  During the three and nine month periods ended June 30, 2007,
      the Company amortized approximately $2 and $4, respectively, related to the
      number of units sold.  The Company has focused additional resources in
      the adjustable pedal market and expects sales of these products to continue
      to
      grow throughout the remainder of fiscal 2007 and beyond.  During the
      three and nine months ended June 30, 2006, the Company sold adjustable pedals
      and recorded an accrual for royalties related to these sales of $2 and $3,
      respectively.  As of June 30, 2006, the Company amortized
      approximately $2 related to the number of units sold.





Additionally,
      as part of the sale of the Company’s passenger car and light truck product lines
      to Teleflex Incorporated on September 30, 2003, the Company obtained the right
      to use certain of Teleflex’s adjustable pedal patents in exchange for Teleflex
      receiving licenses for certain of the Company’s patents.





In
      fiscal 2005, the Company entered
      into an agreement to license non-contacting Hall effect sensor
      technology.  The Company is using this license to internally produce
      non-contacting sensors for use in its electronic throttle
      controls.  The initial licensing fee of $140 was paid and capitalized
      during fiscal 2005.  The Company amortizes this license fee over a
      five year period beginning once units are produced and sold.  For the
      three and nine month periods ended June 30, 2007, the Company amortized $7
      and
      $21, respectively, of this initial licensing fee.  In addition, the
      Company will make royalty payments based on the number of units sold, which
      includes minimum yearly royalties beginning in year three of this
      agreement.  As of June 30, 2007, the Company recorded royalty payments
      of $84 related to units sold during fiscal 2007.  The Company
      capitalized, as part of the license fee, $229 which is equal to the present
      value of the minimum royalty payment obligation.  The Company will
      amortize the capitalized license fee once the Company begins selling
      units.  This agreement is for a period of ten years and is renewed
      annually based on written mutual agreement.  This agreement may be
      terminated by the licensor after four years if certain sales thresholds are
      not
      met.





**Note
      9. Settlement of Accounts Payable**





Included
      in the accompanying condensed consolidated balance sheet is approximately $167
      of old accounts payable related to closed insolvent subsidiaries of the
      Company.  In accordance with SFAS No. 140 “Accounting for Transfers
      and Servicing of Financial Assets and Extinguishments of Liabilities”, a debtor
      can only relieve itself of a liability if it has been
      extinguished.  Accordingly, a liability is considered extinguished if
      (a) the debtor pays the creditor and is relieved of its obligation for the
      liability or (b) the debtor is legally released from being the primary obligor
      under the liability, either judicially or by the creditor.  During the
      three and nine month periods ended June 30, 2007, the Company was judicially
      released from and reversed $37 and $877, respectively, of old accounts payable
      related to closed insolvent subsidiaries of the Company resulting in a gain,
      which has been recorded in other (income) expense in the accompanying condensed
      consolidated statements of operations.




**8**


During
      the three and nine month periods ended June 30, 2006, the Company was judicially
      released from and reversed $161 and $339, respectively.  The Company
      expects to reverse amounts in future periods based on the recognition of the
      liabilities being judicially released in accordance with SFAS No. 140 of $12
      remaining in fiscal 2007; $90 in fiscal 2010; and $65 in fiscal
      2011.





**Note
      10. Debt**





In
      September 2004, the Company entered
      into a $25,000 senior secured lending facility with Merrill Lynch, consisting
      of
      an $8,000 revolving loan facility and a $17,000 term loan.  The loans
      are secured by substantially all the assets of the
      Company.  Borrowings under the revolving loan facility are subject to
      a borrowing base equal to 85% of eligible accounts receivables and 60% of
      eligible inventories.  Interest rates under the new agreement are
      based on the election of the Company of either a LIBOR rate or Prime
      rate.  Under the LIBOR rate option, the revolving loan facility will
      bear interest at the LIBOR rate plus 3.75% per annum and borrowings under the
      term loan facility will bear interest at the LIBOR rate plus
      4.25%.  Under the Prime rate option, the revolving loan facility will
      bear interest at the Prime rate plus 2.75% per annum and the term loan facility
      will bear interest at the Prime rate plus 3.25%.  Fees under the loan
      agreement include an unused line fee of .50% per annum on the unused portion
      of
      the revolving credit facility.





The
      Company is required to repay the
      term loan in equal quarterly scheduled payments which are computed to repay
      the
      loan by the end of the term.  The Company is entitled to prepay the
      term loan, in whole or in part, in minimum amounts without
      penalty.  Mandatory prepayments of the loans under the term loan are
      required in amounts equal to 75% of the Company’s excess cash flow, as defined
      in the agreement, for each fiscal year and 100% of (i) the insurance or
      condemnation proceeds received in connection with a casualty event, condemnation
      or other loss, less any proceeds reinvested by the Company up to $500 per fiscal
      year; (ii) the net proceeds from issuance of equity or debt securities and
      (iii)
      the net cash proceeds of asset sales or other dispositions subject to customary
      exceptions.  The revolving loan facility expires on September 29,
      2009, at which time all outstanding amounts under the revolving loan facility
      are due and payable.  The Company is subject to certain quarterly and
      annual financial covenants.  At June 30, 2007, the Company was in
      compliance with all of its financial covenants.  During the first
      quarter of fiscal 2006, the Company repurchased $3,200 of its common stock
      from
      one investor as discussed in Note 13.  The Company obtained a required
      consent from Merrill Lynch to purchase the common stock and to include the
      repurchase payment in the calculation of excess cash flow for the year ended
      September 30, 2005.  During the second quarter of fiscal 2006, the
      Company paid $2,074 related to the excess cash flow requirement for fiscal
      2005
      and the required quarterly scheduled principal payments were reduced from $850
      to $712.  During the second quarter of fiscal 2007, the Company paid
      an additional $1,149 related to the excess cash flow requirement of fiscal
      2006,
      and the prepayment reduced the Company’s future required quarterly scheduled
      payments from $712 to $607.  In June 07, the Company paid off an
      additional $1,369 in addition to the scheduled quarterly payment, and the
      prepayment reduced the Company’s future required quarterly scheduled payments
      from $607 to $443.





For
      this facility, the Company was
      required to pay Merrill Lynch a commitment fee of $500.  In addition,
      the Company must pay Merrill Lynch an annual agency fee of $25 and reimburse
      Merrill Lynch for any costs and expenses incurred in connection with the
      completion of the new credit agreement.  The commitment fee and
      expenses incurred by Merrill Lynch and paid for by the Company have been
      capitalized in the accompanying consolidated balance sheet.  At June
      30, 2007 the remaining unamortized balance is $146.  This balance is
      being amortized over the remaining life of the loan facility utilizing the
      effective interest method and is adjusted accordingly if any non scheduled
      debt
      payments are made which reduce the outstanding balance of the loan
      facility.





The
      Company had available under its
      revolving credit facility $8,000 at both June 30, 2007 and September 30,
      2006.





The
      Company’s long-term debt and capital lease obligations consist of the
      following:





**June
                30, 2007**
            
            
            **September
                30, 2006**Revolving
                credit facility due September 29, 2009, bearing interest at a variable
                rate.
            
            $
            -
            
            
            $
            -Term
                loan due September 29, 2009, balance bearinginterest
                at a variable rate, (10.1% at June 30, 2007)
            
            
            3,991
            
            
            
            8,5403,991
            
            
            
            8,540Less
                current portion
            
            
            (1,774
            )
            
            
            (3,996
            )$
            2,217
            
            
            $
            4,544





**9**


**Note
      11.  Product Warranties**





The
      Company establishes a product warranty liability based on a percentage of
      product sales.  The liability is based on historical return rates of
      products and amounts for significant and specific warranty issues, and is
      included in accrued expenses in the accompanying condensed consolidated balance
      sheets.  Warranty is limited to a specified time period, mileage or
      hours of use, and varies by product, application and customer.  The
      Company has recorded a liability, which in the opinion of management is adequate
      to cover such warranty costs.  Following is a reconciliation of the
      changes in the Company’s warranty liability for the three and nine month periods
      ended June 30, 2007 and 2006:





**Three
                month periods ended**
            
            
            **Nine
                month periods ended****June
                30, 2007**
            
            
            **June
                30, 2006**
            
            
            **June
                30, 2007**
            
            
            **June
                30, 2006**Balance
                at beginning of period
            
            $
            2,138
            
            
            $
            1,573
            
            
            $
            1,720
            
            
            $
            1,656Payments
            
            
            (120
            )
            
            
            (223
            )
            
            
            (360
            )
            
            
            (708
            )Additional
                accruals
            
            
            213
            
            
            
            232
            
            
            
            632
            
            
            
            818Accrual
                adjustments
            
            
            -
            
            
            
            -
            
            
            
            239
            
            
            
            (184
            )Balance
                at end of period
            
            $
            2,231
            
            
            $
            1,582
            
            
            $
            2,231
            
            
            $
            1,582





During
      the second quarter of fiscal 2007, the Company recorded an additional warranty
      liability of $239 related to warranty claims with one customer.  The
      Company reviewed its assumptions for its warranty liability with this one
      customer, which covers a period in excess of one year, and determined an
      additional liability was required.  This additional liability has been
      recorded in cost of sales in the accompanying condensed consolidated statement
      of operations.





In
      the
      second quarter of fiscal 2006, the Company settled certain warranty claims
      with
      one customer covering a period in excess of one year for less than was
      anticipated in the Company’s liability assumptions, which were based on
      historical return rates and prior settlements.  Based on this, the
      Company reduced its warranty liability during the second quarter of fiscal
      2006
      by $184, which has been reflected in cost of sales in the accompanying condensed
      consolidated statement of operations.





Included
      in the warranty liability at June 30, 2007 and June 30, 2006 are warranty
      liabilities associated with our former passenger car and light truck product
      lines, which were sold on September 30, 2003.  The Company recorded a
      $400 warranty liability during 2003 related to products sold from our passenger
      car and light truck product lines in fiscal 2003.  The Company’s
      obligation for products sold by these product lines relates only to products
      sold prior to September 30, 2003.





**Note
      12. Pension Plans and Post Retirement Benefits**





The
      Company maintains two pension plans, an hourly employee plan and a salaried
      employee plan.  The hourly plan covers certain of the Company’s union
      employees.  The salaried plan covers certain salaried employees,
      however,  modifications made to the salaried plan in 2003 limit
      participation to those eligible employees in the plan at the time of
      modification and limit the benefits under the plan to those earned to that
      date.  Annual net periodic pension costs under the plans are
      determined on an actuarial basis.  The Company’s policy is to fund
      these costs accrued over 15 years and obligations arising due to plan amendments
      over the period benefited.  The assets and liabilities are adjusted
      annually based on actuarial results.  Disclosures regarding the
      components of net periodic benefit cost and contributions of pension plans
      are
      required for interim financial statements and are included below.





**10**




***Components
                of Net Periodic Benefit Cost:*****Salaried
                Employees Plan**
            
            
            **Hourly
                Employees Plan****Three
                Month Period Ended**
              **June
                30,**
            
            
            **Three
                Month Period Ended**
              **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Service
                cost
            
            $
            -
            
            
            $
            -
            
            
            $
            29
            
            
            $
            36Interest
                cost
            
            
            73
            
            
            
            69
            
            
            
            112
            
            
            
            103Expected
                return on plan assets
            
            
            (68
            )
            
            
            (63
            )
            
            
            (100
            )
            
            
            (93
            )Amortization
                of prior service cost
            
            
            -
            
            
            
            -
            
            
            
            12
            
            
            
            13Amortization
                of loss
            
            
            23
            
            
            
            29
            
            
            
            62
            
            
            
            86Net
                periodic benefit cost
            
            $
            28
            
            
            $
            35
            
            
            $
            115
            
            
            $
            145





**Salaried
                Employees Plan**
            
            
            **Hourly
                Employees Plan****Nine
                Month Period Ended**
              **June
                30,**
            
            
            **Nine
                Month Period Ended**
              **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Service
                cost
            
            $
            -
            
            
            $
            -
            
            
            $
            87
            
            
            $
            108Interest
                cost
            
            
            219
            
            
            
            207
            
            
            
            336
            
            
            
            309Expected
                return on plan assets
            
            
            (204
            )
            
            
            (189
            )
            
            
            (300
            )
            
            
            (279
            )Amortization
                of prior service cost
            
            
            -
            
            
            
            -
            
            
            
            36
            
            
            
            39Amortization
                of loss
            
            
            69
            
            
            
            87
            
            
            
            186
            
            
            
            258Net
                periodic benefit cost
            
            $
            84
            
            
            $
            105
            
            
            $
            345
            
            
            $
            435





The
      Company expects total contributions to its pension plans in fiscal 2007 to
      be
      $1,634.  As of June 30, 2007, the Company has made contributions of
      $1,232.  As a result of the realignment of operations discussed in
      Note 3, there will be a curtailment of certain pension obligations that will
      result in a net gain when employees terminate.





The
      Company also provides health care and life insurance benefits for certain of
      its
      retired employees.  These benefits are subject to deductibles,
      co-payment provisions and other limitations.  Disclosures regarding
      the components of net periodic benefit cost and contributions of the Company’s
      post-retirement plan are required for interim financial statements and are
      included below.  The Company did not make any contributions to the
      post-retirement plan for the three and nine month periods ended June 30, 2007
      and 2006.





***Components
                of Net Periodic Benefit Cost:*****Post-Retirement
                Plan****Three
                Month Period Ended**
              **June
                30,**
            
            
            **Nine
                Month Period Ended**
              **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Service
                cost
            
            $
            2
            
            
            $
            1
            
            
            $
            6
            
            
            $
            3Interest
                cost
            
            
            55
            
            
            
            50
            
            
            
            165
            
            
            
            150Amortization
            
            
            (6
            )
            
            
            (7
            )
            
            
            (18
            )
            
            
            (21
            )Net
                periodic benefit cost
            
            $
            51
            
            
            $
            44
            
            
            $
            153
            
            
            $
            132





**Note
      13. Related Parties**





During
      the first quarter of fiscal
      2006, American Industrial Partners Capital Fund III, L.P. (“AIP”) sold all of
      its shares of stock in the Company to three purchasers: (i) the Company; (ii)
      Dolphin Offshore Partners L.P. (“Dolphin”), an affiliate of Dolphin Advisors,
      LLC (“Dolphin Advisors”); and (iii) an investment group arranged by Taglich
      Brothers, Inc.  The Company repurchased 416,666 shares at $7.68 per
      share.  Dolphin purchased 355,420 shares at $7.68 per
      share.  The investment group arranged by Taglich Brothers, Inc.
      purchased 355,420 shares also at $7.68 per share.  Peter E. Salas, a
      member of the Board of Directors of the Company, is a member of Dolphin
      Advisors.  Douglas E. Hailey, also a member of the Board of Directors
      of the Company, is the Vice President of the Investment Banking Division of
      Taglich Brothers, Inc.





Effective
      with the 2004 recapitalization transaction, the Company entered into an Amended
      and Restated Management Services Agreement (the “Agreement”) with American
      Industrial Partners (“AIP Advisor”) and Dolphin
      Advisors.




**11**


Effective
      October 1, 2005, the remaining obligation under the Agreement is to pay an
      annual management fee to Dolphin Advisors of $60 until August 1,
      2008.





During
      the first quarter of fiscal
      2007, the Company paid bonuses related to fiscal year 2006.  As part
      of the employment agreement with Patrick W. Cavanagh, President and Chief
      Executive Officer, the Company has the option to pay Mr. Cavanagh a portion
      of
      his bonus in shares of common stock of the Company as approved by the board
      of
      directors.  The Company paid $89 of Mr. Cavanagh’s bonus related to
      fiscal year 2006 in shares of common stock, consisting of 6,401 shares at a
      price of $13.91 per share.  During the first quarter of fiscal 2006,
      the Company paid $60 of Mr. Cavanagh’s bonus related to fiscal year 2005 in
      shares of common stock, consisting of 6,223 shares at a price of $9.66 per
      share.





Additionally,
      in the third quarter of
      fiscal 2007, the Company elected to pay 7% of Mr. Cavanagh’s fiscal 2007 salary
      in common stock of the Company and issued 989 shares of restricted common stock
      at $16.98 per share.  Also during the third quarter of fiscal 2007,
      the Company paid $5 of Dennis E. Bunday’s, Executive Vice President and Chief
      Financial Officer, and $3 of Mark S. Koenen’s, Vice President of Sales and
      Marketing, salary in common stock of the Company and issued 294 and 176 shares,
      respectively, of restricted common stock at $16.98 per share.  During
      the third quarter of fiscal 2006, the Company elected to pay 7% of Mr.
      Cavanagh’s fiscal 2006 salary in common stock of the Company and issued 1,306
      shares of restricted common stock at $12.86 per share.  Also during
      the third quarter of fiscal 2006, the Company paid $5 of Mr. Bunday’s salary in
      common stock of the Company and issued 388 shares of restricted common stock
      at
      $12.86 per share.





**Note
      14. Segment Information**





The
      Company accounts for its segments in accordance with SFAS No. 131 “Disclosures
      about Segments of an Enterprise and Related Information”.  During the
      three and nine month periods ended June 30, 2007 and 2006, the Company operated
      in two geographic reportable segments as shown in the table below.





**Three
                Month Periods Ended**
              **June
                30,**
            
            
            **Nine
                Month Periods Ended**
              **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenue
                – External Customers:United
                States
            
            $
            15,487
            
            
            $
            19,827
            
            
            $
            51,973
            
            
            $
            54,663China
            
            
            335
            
            
            
            71
            
            
            
            600
            
            
            
            163$
            15,822
            
            
            $
            19,898
            
            
            $
            52,573
            
            
            $
            54,826Revenue
                – Intersegments:United
                States
            
            $
            746
            
            
            $
            620
            
            
            $
            2,090
            
            
            $
            1,790China
            
            
            1,856
            
            
            
            1,160
            
            
            
            6,075
            
            
            
            2,244Other
            
            
            139
            
            
            
            74
            
            
            
            407
            
            
            
            217Eliminations
            
            
            (2,741
            )
            
            
            (1,854
            )
            
            
            (8,572
            )
            
            
            (4,251
            )$
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Income
                before income taxes:United
                States
            
            $
            2,718
            
            
            $
            4,179
            
            
            $
            9,775
            
            
            $
            10,731China
            
            
            1
            
            
            
            29
            
            
            
            42
            
            
            
            (127
            )Other
            
            
            24
            
            
            
            (155
            )
            
            
            (39
            )
            
            
            (384
            )$
            2,743
            
            
            $
            4,053
            
            
            $
            9,778
            
            
            $
            10,220





**Note
      15. Contingencies**





The
      Company and its subsidiaries are
      parties to various pending judicial and administrative proceedings arising
      in
      the ordinary course of business.  The Company’s management and legal
      counsel have reviewed the probable outcome of these proceedings, the costs
      and
      expenses reasonably expected to be incurred, the availability and limits of
      the
      Company’s insurance coverage, and the Company’s established
      liabilities.  While the outcome of the pending proceedings cannot be
      predicted with certainty, based on its review, the Company believes that any
      unrecorded liability that may result is not more than likely to have a material
      effect on the Company’s liquidity, financial condition or results of
      operations.





The
      soil
      and groundwater at our Portland, Oregon facility contains certain contaminants,
      which were deposited from approximately 1968 through 1995.  Some of
      this contamination has migrated offsite to a neighboring
      property.




**12**


The
      Company has retained an environmental consulting firm to investigate the extent
      of the contamination and to determine what, if any, remediation will be required
      and the associated costs.  During the third quarter of fiscal 2004,
      the Company entered into the Oregon Department of Environmental Quality’s
      voluntary clean-up program and during fiscal 2004 the Company established a
      liability of $950 for this matter.  As of June 30, 2007, this
      liability has been reduced to $518 to reflect expenditures made to complete
      portions of the investigation and is recorded in accrued expenses in the
      accompanying condensed consolidated balance sheet.  The Company has
      made contribution claims for investigation and remediation costs against both
      prior operators of the property and a former owner of the property under the
      Federal Superfund Act and the Oregon Cleanup Law.  The Company
      believes it also has a contractual right to indemnification from one of the
      prior operators of the property for a portion of the investigation and
      remediation costs and has notified the prior operator of this indemnity
      claim.  The Company is exploring the possibility of cooperative
      settlement with both prior operators and the prior owner of the
      property.  The Company intends to pursue legal action against the
      prior owner and these prior operators if settlements cannot be reached in a
      reasonable time.  During the second quarter of fiscal 2006, Dana
      Corporation (“Dana”), a prior owner and operator from whom the Company has a
      contractual right to indemnification, filed a Chapter 11 bankruptcy petition
      in
      the United States Bankruptcy Court for the Southern District of New
      York.  The Company has filed a proof of Claim against Dana with the
      Court for the entire cost of the investigation and clean-up.  At this
      time it is uncertain how this bankruptcy petition will impact the ultimate
      recovery from Dana, however, the Company has not previously reflected any
      potential recovery in its consolidated financial statements.  The
      Company believes that even with a resolution of the claims against the prior
      operators and owner of the property, the Company will be liable for some portion
      of the ultimate costs.





On
      October 1, 2004, the Company was
      named as a co-defendant in a product liability case (Cuesta v. Ford, et al,
      District Court for Bryant, Oklahoma).  During the second quarter
      of fiscal 2007, the Oklahoma district court granted the plaintiffs class action
      status.  Both the Company and Ford are appealing this
      decision.  The complaint seeks an unspecified amount of damages on
      behalf of the class.   The Company continues to believe the
      claims to be without merit and intends to continue to vigorously defend against
      this action.  There can be no assurance, however, that the outcome of
      the lawsuit will be favorable to the Company or will not have a material adverse
      effect on the Company’s business, consolidated financial condition and results
      of operations.  The Company cannot reasonably estimate the possible
      loss or range of loss at this time.  In addition, the Company has
      incurred and will continue to incur substantial litigation expenses in defending
      this litigation.





On
      August 1, 2005, Mr. Thomas Ziegler,
      the Company’s former president and chief executive officer, filed a 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.  This suit is similar to a suit filed by Mr. Ziegler on May
      12, 2003 against the same defendants.  The 2003 suit was dismissed
      without prejudice for failure to prosecute.  In the suit, Mr. Ziegler
      alleges the Company breached an “oral agreement” with Mr. Ziegler to pay him
      additional compensation, including a bonus of "at least" $500 for certain tasks
      performed by Mr. Ziegler while he was the Company's president and chief
      executive officer and seeks additional compensation to which he claims he is
      entitled.  The Company disputes the existence of any such agreement
      and any resulting liability to Mr. Ziegler and is vigorously defending this
      action.

































**13**


**Williams
      Controls, Inc.**





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


**(Dollars
      in thousands, except share and per share amounts)**





This
      section summarizes the significant factors affecting our consolidated results
      of
      operations, financial condition and liquidity position for the three and nine
      month periods ended June 30, 2007 and 2006.  This section should be
      read in conjunction with our condensed consolidated financial statements and
      related notes appearing elsewhere in this document.





**Forward-Looking
      Statements**





Certain
      statements contained in this
      section, in Quantitative and Qualitative Disclosure About Market Risk, and
      elsewhere in this report are intended to be covered by the safe harbor provided
      for under Section 27A of the Securities Act of 1933, as amended, and Section
      21E
      of the Securities Exchange Act of 1934, as amended.  Our
      forward-looking statements include our current expectations and projections
      about future results, development of new products, the ability to increase
      distribution of our products, performance and financial condition of the
      Company, results of litigation, prospects and opportunities.  We have
      tried to identify these forward-looking statements by using words such as “may,”
“will,” “expect,” “anticipate,” “believe,” “intend,” “feel,” “plan,” “estimate”
and similar expressions.  These forward-looking statements are based
      on information currently available to us and are expressed in good faith and
      believed to have a reasonable basis.  However, our forward-looking
      statements are subject to a number of risks, uncertainties and other factors
      that could cause our actual results, performance, prospects or opportunities
      to
      differ materially from those expressed in, or implied by, these forward-looking
      statements.





These
      risks, uncertainties and other
      factors include, but are not limited to, those set forth under Part II, Item
      1A
– “Risk Factors” in this report and Item 1 – “Business” and Item 1A – “Risk
      Factors” in our annual report filed on Form 10-K for the year ended September
      30, 2006.  Given these risks and uncertainties, readers are cautioned
      not to place undue reliance on our forward-looking statements.  All
      subsequent written and oral forward-looking statements attributable to the
      Company or to persons acting on our behalf are expressly qualified in their
      entirety by these cautionary statements.  The forward-looking
      statements are made as of the date hereof, and except as required by law, we
      do
      not intend to update or review any forward-looking statements or to update
      the
      reasons why the actual results could differ materially from those projected
      in
      the forward-looking statements, whether as a result of new information, future
      events or otherwise.





**Overview**





We
      design, manufacture and sell
      electronic throttle and pneumatic control systems for heavy trucks, transit
      busses and off-road equipment.  Electronic throttle controls send a
      signal proportional to throttle position to adjust the speed of electronically
      controlled engines.  The use of electronically controlled engines is
      influenced primarily by emissions regulations, because these engines generally
      produce lower emissions.  The original applications of electronic
      engines and electronic throttle controls were in heavy trucks and transit busses
      in the United States and Europe in the late 1980’s.  As a result of
      the continuing implementation of more stringent emissions standards worldwide,
      demand for electronically controlled engines and electronic throttle control
      systems is expanding.  Both China and India have announced
      requirements for more stringent emissions standards for heavy trucks and transit
      busses.  Additionally, worldwide emissions regulations have been
      enacted that increase the use of electronic throttle controls in off-road
      equipment.  We also produce a line of pneumatic control products,
      which are sold to the same customer base as our electronic throttle
      controls.  These pneumatic products are used for vehicle control
      system applications.  We believe that the demand for our products will
      be driven by worldwide emissions legislation and the economic cycles for heavy
      trucks, transit busses and off-road equipment.





As
      we move forward in fiscal 2007 and
      beyond, we will continue to work closely with our existing and potential
      customers to design and develop new products and adapt existing products to
      new
      applications, and to improve the performance, reliability and cost-effectiveness
      of our products.





**Critical
      Accounting Policies and Estimates**





Management's
      discussion and analysis of
      our financial condition and results of operations are based on our condensed
      consolidated financial statements, which have been prepared in accordance with
      accounting principles generally accepted in the United
      States.




**14**


The
      preparation of these condensed consolidated financial statements requires us
      to
      make estimates and judgments that affect the reported amounts of assets,
      liabilities, sales, cost of sales and expenses and related disclosure of
      contingent assets and liabilities.  We evaluate our estimates on an
      on-going basis.  We base our estimates on historical experience and on
      various other assumptions that are believed to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying value of assets and liabilities that are not readily apparent
      from
      other sources.  Actual results may differ from these estimates under
      different assumptions or conditions.  We believe the following
      critical accounting policies and the related judgments and estimates affect
      the
      preparation of our condensed consolidated financial statements.





***Revenue
      Recognition***





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





***Warranty***





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





***Legal***





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





***Environmental***





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





***Pensions
      and Post-Retirement Benefit Obligations***





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




**15**


Actual
      results in any given year will often differ from actuarial assumptions because
      of economic and other factors.





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





***Stock-Based
      Compensation Expense***





As
      of October 1, 2006, we adopted
      SFAS No. 123R, which requires us to measure compensation cost for all
      outstanding unvested share-based awards, and awards we grant, modify, repurchase
      or cancel in the future, at fair value and recognize compensation over the
      requisite service period for awards expected to vest.  The estimation
      of stock awards that will ultimately vest requires judgment, and to the extent
      actual results differ from our estimates, such amounts will be recorded as
      a
      cumulative adjustment in the period estimates are revised.  We
      consider many factors when calculating fair value including estimated stock
      price volatility, expected term and expected forfeitures.  Factors
      considered in estimating forfeitures include the types of awards, employee
      class, and historical experience.  Actual results may differ
      substantially from these estimates.  We recorded $136 and $389 of
      stock-based compensation expense for the three and nine month periods ended
      June
      30, 2007.  Stock-based compensation expense recorded in the three
      month period ended June 30, 2007 included $12 in cost of sales, $10 in research
      and development, $17 in selling and the remaining $97 in administration
      expense.  Stock-based compensation expense recorded in the nine month
      period ended June 30, 2007 included $38 in cost of sales, $21 in research and
      development, $45 in selling and the remaining $285 in administration
      expense.  For the three and nine month periods ended June 30, 2006, we
      recorded $102 and $325 of stock-based compensation expense,
      respectively.  Stock-based compensation expense recorded in the three
      month period ended June 30, 2006 included $13 in cost of sales, $7 in research
      and development, $12 in selling and the remaining $70 in administration
      expense.  Stock-based compensation expense recorded in the nine month
      period ended June 30, 2006 included $37 in cost of sales, $19 in research and
      development, $36 in selling and the remaining $233 in administration
      expense.





***Income
      Taxes***





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





**Results
      of Operations**





**Financial
      Summary**


**(Dollars
      in Thousands)**





**Three
                Month Period**
              **Ended
                June 30,**
            
            
            **Nine
                Month Period**
              **Ended
                June 30,****2007**
            
            
            **2006**
            
            
            **%
                Change**
            
            
            **2007**
            
            
            **2006**
            
            
            **%
                Change**Net
                sales
            
            $
            15,822
            
            
            $
            19,898
            
            
            
            (20.5%)
            
            
            $
            52,573
            
            
            $
            54,826
            
            
            
            (4.1%)Cost
                of sales
            
            
            10,117
            
            
            
            12,761
            
            
            
            (20.7%)
            
            
            
            34,441
            
            
            
            35,543
            
            
            
            (3.1%)Gross
                profit
            
            
            5,705
            
            
            
            7,137
            
            
            
            (20.1%)
            
            
            
            18,132
            
            
            
            19,283
            
            
            
            (6.0%)Research
                and development
            
            
            797
            
            
            
            898
            
            
            
            (11.2%)
            
            
            
            2,465
            
            
            
            2,560
            
            
            
            (3.7%)Selling
            
            
            560
            
            
            
            522
            
            
            
            7.3%
            
            
            
            1,653
            
            
            
            1,501
            
            
            
            10.1%Administration
            
            
            1,394
            
            
            
            1,235
            
            
            
            12.9%
            
            
            
            4,049
            
            
            
            4,024
            
            
            
            0.6%




**16**




Realignment
                of operations
            
            
            210
            
            
            
            269
            
            
            
            (21.9%)
            
            
            
            643
            
            
            
            393
            
            
            
            63.6%Operating
                income
            
            $
            2,744
            
            
            $
            4,213
            
            
            
            (34.9%)
            
            
            $
            9,322
            
            
            $
            10,805
            
            
            
            (13.7%)As
                a percentage of net sales:Cost
                of sales
            
            
            63.9%
            
            
            
            64.1%
            
            
            
            
            
            
            
            65.5%
            
            
            
            64.8%Gross
                margin
            
            
            36.1%
            
            
            
            35.9%
            
            
            
            
            
            
            
            34.5%
            
            
            
            35.2%Research
                and development
            
            
            5.0%
            
            
            
            4.5%
            
            
            
            
            
            
            
            4.7%
            
            
            
            4.7%Selling
            
            
            3.5%
            
            
            
            2.6%
            
            
            
            
            
            
            
            3.1%
            
            
            
            2.7%Administration
            
            
            8.8%
            
            
            
            6.2%
            
            
            
            
            
            
            
            7.7%
            
            
            
            7.3%Realignment
                of operations
            
            
            1.3%
            
            
            
            1.4%
            
            
            
            
            
            
            
            1.2%
            
            
            
            0.7%Operating
                income
            
            
            17.3%
            
            
            
            21.2%
            
            
            
            
            
            
            
            17.7%
            
            
            
            19.7%





**Comparative
                    – Three month periods ended June 30, 2007 and
                    2006**





*NM
      =
      Not Meaningful*


**Percent
                Change****For
                the Three Month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Net
                sales
            
            $
            15,822
            
            
            $
            19,898
            
            
            
            (20.5%)





Net
      sales
      decreased $4,076 in the third quarter of fiscal 2007 compared to the third
      quarter of fiscal 2006, primarily due to an overall decrease of 31% in sales
      volumes of electronic throttle control systems in the North American
      market.  This decrease in net sales was partially offset by a 27%
      increase in sales volumes in Asia, a 9% increase in Europe and an increase
      in
      sales of our pneumatic control systems.  We expect that electronic
      throttle control sales will increase or decrease in the future in line with
      changes in heavy truck and transit bus production volumes in the various
      geographic markets in which we serve and when new product lines are established;
      however, competitive pricing may continue to reduce per unit
      pricing.  A change in emissions regulations in the United States
      effective January 1, 2007 had a negative impact on truck sales in North America
      during the third quarter of fiscal 2007, and therefore the sales of our products
      to heavy truck manufacturers in the United States, however, this does not
      represent a change in our overall penetration of this market.  The
      published estimates of this decline in North American heavy truck production
      vary widely, however, it appears that overall truck production volumes in North
      America in calendar year 2007 will be between 30% and 50% lower than 2006
      production volumes.  As this production shift has been attributed to
      the change in emission standards, it is anticipated that the North American
      truck production volumes will increase in subsequent years, although potentially
      not to the 2006 levels.





**Percent
                Change****For
                the Three Month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Gross
                profit
            
            $
            5,705
            
            
            $
            7,137
            
            
            
            (20.1%)





Gross
      profit was $5,705, or 36.1% of net sales in the third quarter of 2007, a
      decrease of $1,432 compared to the gross profit of $7,137, or 35.9% of net
      sales, in the comparable fiscal 2006 period.





The
      decrease in gross profit in the third quarter of fiscal 2007 is primarily volume
      driven as sales of our products were 20.5% lower than last year’s third
      quarter.  Overhead expenses for the quarter ended June 30, 2007 also
      increased over the prior year as a result of costs associated with our
      manufacturing facility in Suzhou, China.  The increase in overhead
      expense was partially offset by an overall decrease in material costs due to
      continued efforts in global sourcing and the production of our own internally
      developed contacting and non-contacting sensors.





**Percent
                Change****For
                the Three Month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Research
                and development
            
            $
            797
            
            
            $
            898
            
            
            
            (11.2%)





Research
      and development expenditures for the third fiscal quarter of 2007 decreased
      $101
      when compared to the comparable period in 2006.  The Company’s
      research and development expenditures will fluctuate based on the products
      under
      development at any given point in time.  Overall, we expect research
      and development expenses to increase slightly over fiscal 2006 levels due to
      additional new product design projects.




**17**




**Percent
                Change****For
                the Three Month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Selling
            
            $
            560
            
            
            $
            522
            
            
            
            7.3%





Selling
      expenses increased $38 during the three month period ended June 30, 2007 as
      compared with the three month period ended June 30, 2006 mainly due to expanded
      selling and marketing efforts in the European and Asian markets implemented
      during mid fiscal 2006.  We expect that overall our selling expenses
      will increase in fiscal 2007 as we incur a full year of expenses for the higher
      activity associated with our expanded sales efforts worldwide.





**Percent
                Change****For
                the Three Month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Administration
            
            $
            1,394
            
            
            $
            1,235
            
            
            
            12.9%





Administration
      expenses for the three month period ended June 30, 2007 increased $159 when
      compared with the same period in fiscal 2006.  The increase in
      administration expense is primarily a result of an increase in legal fees and
      increased expenses associated with our China manufacturing
      facility.  Administration expenses also increased during the third
      quarter of fiscal 2007 as the Company incurred costs to prepare for its initial
      compliance with the evaluation of internal control requirements of Section
      404
      of the Sarbanes-Oxley Act.  We will continue to incur expenses
      associated with becoming compliant with Section 404 of the Sarbanes-Oxley Act
      in
      future periods as well as incur costs associated with the audit of the Company’s
      internal controls, which will increase administrative costs significantly in
      fiscal 2007.





**Percent
                Change****For
                the Three Month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Realignment
                of operations
            
            $
            210
            
            
            $
            269
            
            
            
            (21.9%)





The
      Company recorded expenses of $210
      during the third quarter of fiscal 2007 related to its realignment of operations
      as discussed in Note 3 of the unaudited condensed consolidated financial
      statements.  The realignment of operations expense for the third
      quarter of fiscal 2007 decreased $59 compared to the third quarter of fiscal
      2006, primarily due to a decrease in employee termination benefits being accrued
      as employee terminations began to take place during the quarter.  We
      expect the accrual for employee termination benefits to significantly decrease
      in future periods, as we anticipate completing the restructuring by the end
      of
      calendar year 2007.





**Percent
                Change****For
                the Three Month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Interest
                income
            
            $
            (34
            )
            
            $
            (13
            )
            
            
            161.5%Interest
                expense
            
            $
            185
            
            
            $
            323
            
            
            
            (42.7%)





Interest
      expense decreased $138 in the third quarter of fiscal 2007 as compared to the
      third quarter of fiscal 2006, primarily due to the reduction of debt levels
      resulting from the 2006 excess cash flow payment of $1,149 made during the
      second quarter of fiscal 2007 as discussed in Note 10 to our unaudited condensed
      consolidated financial statements, and due to our regularly scheduled debt
      payments each quarter.  We paid down additional term debt in excess of
      our normal quarterly payment at the end of the third quarter of fiscal 2007,
      which will have a significant impact in decreasing interest expense expected
      to
      be incurred in future periods.





**Percent
                Change****For
                the Three Month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Other
                income
            
            $
            (150
            )
            
            $
            (151
            )
            
            
            0.7%





Other
      income remained relatively
      constant during the third quarter of fiscal 2007 compared to same period in
      fiscal 2006.  Included in other income during the three months ended
      June 30, 2007 is a gain of $37, for the reversal of old accounts payable related
      to closed insolvent subsidiaries of the Company as discussed in Note 9 of the
      unaudited condensed consolidated financial statements compared to a gain of
      $161
      during the three months ended June 30, 2006.  Also included in the
      quarter ended June 30, 2007, is a gain of $70 related to the disposal of certain
      fixed assets.





**18**





**Percent
                Change****For
                the Three Month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Income
                tax expense
            
            $
            919
            
            
            $
            1,285
            
            
            
            (28.5%)





Tax
      expense reflects an effective tax rate of 33.5% for the three month period
      ended
      June 30, 2007 compared to an effective tax rate of 31.7% for the comparable
      three month period in fiscal 2006.




**Comparative
              – Nine month periods ended June 30, 2007 and
              2006**




*NM
      =
      Not Meaningful*


**Percent
                Change****For
                the Nine month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Net
                sales
            
            $
            52,573
            
            
            $
            54,826
            
            
            
            (4.1%)





Net
      sales
      decreased $2,253 in the first nine months of fiscal 2007 compared to the first
      nine months of fiscal 2006, primarily due to an overall decrease of 10% in
      sales
      volumes of electronic throttle control systems in the North American
      market.  Decreases in North American sales volumes were partially
      offset by increases of 17% and 18%, respectively, in sales volumes in the
      European and Asian markets, and to a lesser extent increases in sales of our
      pneumatic control systems.  We expect that electronic throttle control
      sales will increase or decrease in the future in line with changes in heavy
      truck and transit bus production volumes in the various geographic markets
      in
      which we serve and when new product lines are established; however, competitive
      pricing may continue to reduce per unit pricing.  A change in
      emissions regulations in the United States effective January 1, 2007 had a
      negative impact on truck sales in North America during the second and third
      quarters of fiscal 2007, and therefore on the sales of our products to heavy
      truck manufacturers in the United States, however, this does not represent
      a
      change in our overall penetration of this market.  The published
      estimates of this decline in North American heavy truck production vary widely,
      however, it appears that overall truck production volumes in North America
      in
      calendar year 2007 will be between 30% and 50% lower than 2006 production
      volumes.  As this production shift has been attributed to the change
      in emission standards, it is anticipated that the North American truck
      production volumes will increase in subsequent years, although potentially
      not
      to the 2006 levels.


**Percent
                Change****For
                the Nine month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Gross
                profit
            
            $
            18,132
            
            
            $
            19,283
            
            
            
            (6.0%)





Gross
      profit was $18,132, or 34.5% of net sales in the first nine months of 2007,
      a
      decrease of $1,151 compared to gross profit of $19,283, or 35.2% of net sales,
      in the comparable fiscal 2006 period.





The
      decrease in gross profit in fiscal 2007 is primarily driven by a 4.1% decrease
      in sales of electronic throttle and pneumatic control systems to heavy truck
      and
      transit bus customers.  In addition, the Company recorded an increase
      in warranty liability of $239 during the nine months ended June 30, 2007, as
      compared to a reduction in warranty liability of $184 during the nine months
      ended June 30, 2006, as noted in Note 11 to our unaudited condensed consolidated
      financial statements.  Gross profit was positively impacted by an
      overall decrease in material costs due to continued efforts in global sourcing
      and the production of our own internally developed contacting and non-contacting
      sensors.





**Percent
                Change****For
                the Nine month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Research
                and development
            
            $
            2,465
            
            
            $
            2,560
            
            
            
            (3.7%)





Research
      and development expenses were relatively unchanged for the first nine months
      of
      fiscal 2007 compared to the first nine months of fiscal 2006.  The
      Company’s research and development expenditures will fluctuate based on the
      products under development at any given point in time.  Overall, we
      expect fiscal 2007 research and development expenses to slightly increase over
      fiscal 2006 levels due to additional new product design projects.





**19**




**Percent
                Change****For
                the Nine month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Selling
            
            $
            1,653
            
            
            $
            1,501
            
            
            
            10.1%





Selling
      expenses increased $152 for the nine month period ended June 30, 2007 as
      compared with the nine month period ended June 30, 2006 mainly due to expanded
      selling and marketing efforts in the European and Asian markets implemented
      during mid fiscal 2006.  We expect that overall our selling expenses
      will increase in fiscal 2007 as we incur a full year of expenses for the higher
      activity associated with our expanded sales efforts worldwide.





**Percent
                Change****For
                the Nine month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Administration
            
            $
            4,049
            
            
            $
            4,024
            
            
            
            0.6%





Administration
      expenses for the first nine months of fiscal 2007 remained relatively unchanged
      when compared to the same period in fiscal 2006.  Administration
      expenses for fiscal 2007 include a decrease in legal fees associated with the
      class action lawsuit discussed in Note 15 to our unaudited condensed
      consolidated financial statements which are primarily offset by increases in
      other legal costs and expenses associated with our China manufacturing
      facility.  Administration expenses also increased during the first
      nine months of fiscal 2007 as the Company incurred costs to prepare for its
      initial compliance with the evaluation of internal control requirements of
      Section 404 of the Sarbanes-Oxley Act.  We will continue to incur
      expenses associated with becoming compliant with Section 404 of the
      Sarbanes-Oxley Act in future periods as well as incur costs associated with
      the
      audit of the Company’s internal controls, which will increase administrative
      costs significantly in fiscal 2007.





**Percent
                Change****For
                the Nine month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Realignment
                of operations
            
            $
            643
            
            
            $
            393
            
            
            
            63.6%





The
      Company recorded expenses of $643
      during the first nine months of fiscal 2007 related to its realignment of
      operations as discussed in Note 3 of the unaudited condensed consolidated
      financial statements.  The realignment of operations expense for the
      first nine months of fiscal 2007 increased $250 compared to the first nine
      months of fiscal 2006, primarily due to $350 in employee termination benefits
      being accrued during the first nine months of fiscal 2007.  We expect
      the accrual for employee termination benefits to significantly decrease in
      future periods, as we anticipate completing the restructuring by the end of
      calendar year 2007.





**Percent
                Change****For
                the Nine month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Interest
                income
            
            $
            (95
            )
            
            $
            (53
            )
            
            
            79.2%Interest
                expense
            
            $
            651
            
            
            $
            955
            
            
            
            (31.8%)





Interest
      expense decreased $304 in the first nine months of fiscal 2007 as compared
      to
      the same period in fiscal 2006 due to reductions in debt levels, partially
      offset by higher overall interest rates.  We expect interest expense
      to continue to decrease in fiscal 2007 when compared to fiscal 2006 due to
      the
      continued reduction of debt levels resulting from scheduled debt payments each
      quarter.  We paid down additional term debt in excess of our normal
      quarterly payment at the end of the third quarter of fiscal 2007, which will
      have a significant impact in decreasing interest expense expected to be incurred
      in future periods.





**Percent
                Change****For
                the Nine month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Other
                income
            
            $
            (1,012
            )
            
            $
            (317
            )
            
            *NM*





The
      increase in other income is
      primarily due to recording a gain of $877 during the nine months ended June
      30,
      2007 compared to a gain of $339 during the nine months ended June 30, 2006,
      for
      the reversal of old accounts payable related to closed insolvent subsidiaries
      of
      the Company as discussed in Note 9 of the unaudited condensed consolidated
      financials statements.  Also included in the nine months ended June
      30, 2007, is a gain of $71 related to the disposal of certain fixed
      assets.




**20**




**Percent
                Change****For
                the Nine month Period Ended June 30:**
            
            **2007**
            
            
            **2006**
            
            
            **2007
                to 2006**Income
                tax expense
            
            $
            3,357
            
            
            $
            3,486
            
            
            
            (3.7%)





Tax
      expense reflects an effective tax rate of 34.3% for the first nine months of
      fiscal 2007 compared to an effective tax rate of 34.1% for the comparable period
      in fiscal 2006.  In December 2006 the research credit for 2006 was
      reinstated by Congress and included in tax expense for the first nine months
      of
      fiscal 2007 was a research credit of $71 related to fiscal 2006





The
      Company was in a net operating loss carry-forward position during fiscal
      2005.  We utilized the remainder of our federal operating loss
      carry-forwards in the first quarter of fiscal 2006.





**Financial
      Condition, Liquidity and Capital Resources**





Cash
      generated by operating activities
      was $6,478 for the first nine months of fiscal 2007, an increase of $2,465
      from
      the cash generated by operating activities of $4,013 during the first nine
      months of fiscal 2006.  Net income plus non-cash charges for
      depreciation and stock based compensation contributed $8,286 in the first nine
      months of fiscal 2007 and $8,086 in the first nine months fiscal
      2006.  Additionally in the first nine months of fiscal 2007, cash from
      operations included a $139 change in deferred taxes related to recording the
      tax
      effect for nonqualified stock options.  Cash from operations for the
      first nine months of fiscal 2006 included a $760 utilization of a deferred
      tax
      provision.





Changes
      in working capital items used cash of $1,598 in the first nine months of fiscal
      2007 and $4,837 in the first nine months of 2006.  Timing of
      collections on receivables and sales levels generated cash of $1,485 in the
      first nine months of fiscal 2007 compared with an increase of $738 of
      receivables in the same period of fiscal 2006.  Cash was used to
      increase inventory levels in the first nine months of fiscal 2006 and throughout
      the first half of fiscal 2007 to facilitate switching of suppliers to lower
      cost
      suppliers, primarily in China, our realignment efforts and to support increasing
      operations in our Suzhou, China manufacturing facility.  We expect
      that inventory levels reached their maximum levels at the end of the second
      quarter of fiscal 2007 and as supplier switching and the realignment are
      completed, inventory will decline later in fiscal 2007 to levels lower than
      at
      the end of fiscal 2006.  Accounts payable and accrued expenses
      decreased in the first nine months of fiscal 2007 partially due to the Company
      being judicially released from and writing off $877 of old accounts payable
      as
      discussed in Note 9 of the unaudited condensed consolidated financial
      statements.  Cash flows from operations for the nine month period
      ended June 30, 2007 also included payments to our pension plans of
      $1,232.  For the nine months ended June 30, 2006, we contributed
      $1,031 to our pension plans.  We believe we will continue to generate
      positive cash from continuing operations due to our improved results of
      operations.





Cash
      used
      in investing activities was $1,611 for the nine month period ended June 30,
      2007
      and was comprised of purchases of property, plant and equipment of $1,693
      partially offset by $82 in proceeds from the sale of assets.  For the
      nine month period ended June 30, 2006, cash used in investing activities was
      $1,734 and was comprised solely of purchases of property, plant and
      equipment.  We expect our cash use for investing activities to
      increase throughout the fiscal year as we continue to make purchases of capital
      equipment.





Cash
      used
      in financing activities was $4,342 for the nine month period ended June 30,
      2007, compared to cash used in financing activities of $6,361 for the nine
      month
      period ended June 30, 2006.  The use of cash for financing activities
      for the first nine months of fiscal 2007 primarily relates to the payment of
      $1,149 related to the excess cash flow requirement of our loan agreement with
      Merrill Lynch, scheduled quarterly debt payments on our Merrill Lynch term
      loan
      and an additional term loan payment at the end of the third quarter of fiscal
      2007.  The use of cash for financing activities for the first nine
      months of fiscal 2006 primarily relates to the repurchase of common stock from
      AIP of $3,200, scheduled quarterly debt payments and a $2,074 excess cash flow
      payment related to our Merrill Lynch term loan





**Contractual
      Obligations as of June 30, 2007**





At
      June 30, 2007, our contractual
      obligations consisted of bank debt, operating lease obligations, a service
      agreement and a license agreement.  We do not have any material
      letters of credit, or debt guarantees outstanding at June 30,
      2007.  During the first quarter of fiscal 2007, we entered into a
      purchase commitment to purchase inventory from one vendor during the fiscal
      year
      totaling $1,504.




**21**


Maturities
      of these contractual obligations consist of the following:




**Payments
                due by period****Total**
            
            
            **Less
                than**
              **1
                year**
            
            
            **1
                – 3**
              **years**
            
            
            **3
                – 5**
              **years**
            
            
            **More
                than**
              **5
                years**Term
                loan
            
            $
            3,991
            
            
            $
            1,774
            
            
            $
            2,217
            
            
            $
            -
            
            
            $
            -Operating
                leases
            
            
            2,265
            
            
            
            544
            
            
            
            1,296
            
            
            
            425
            
            
            
            -MMT
                license - minimum royalties
            
            
            433
            
            
            
            93
            
            
            
            140
            
            
            
            150
            
            
            
            50Management
                Services Agreement
            
            
            60
            
            
            
            60
            
            
            
            -
            
            
            
            -
            
            
            
            -$
            6,749
            
            
            $
            2,471
            
            
            $
            3,653
            
            
            $
            575
            
            
            $
            50





Certain
      liabilities, including those related to our pension and post-retirement benefit
      plans, are reported in the accompanying condensed consolidated balance sheets
      but are not reflected in the table above due to the absence of stated
      maturities.  The Company has net obligations at June 30, 2007 related
      to its pension plans and post-retirement medical plan of $2,643 and $3,180,
      respectively.  The Company funded $1,232 to its pension plans during
      the first nine months of fiscal 2007 compared to $1,031 during the first nine
      months of fiscal 2006.  We expect to make payments to our pension
      plans of $402 throughout the rest of fiscal 2007.





At
      June
      30, 2007, we had $8,000 available under our revolving credit facility with
      Merrill Lynch plus cash and cash equivalents of $3,055.  We believe
      these resources, when combined 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 approximately $167 of accounts
      payable related to closed insolvent subsidiaries of the Company.  In
      accordance with SFAS No. 140 “Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities,” a debtor can only relieve
      itself of a liability if it has been extinguished.  A liability is
      considered extinguished if (a) the debtor pays the creditor and is relieved
      of
      its obligation for the liability or (b) the debtor is legally released from
      being the primary obligor under the liability, either judicially or by the
      creditor.  During the three and nine month periods ended June 30,
      2007, the Company was judicially released from and reversed $37 and $877,
      respectively, of old accounts payable related to closed insolvent subsidiaries
      of the Company resulting in a gain, which has been recorded in other (income)
      expense in the accompanying condensed consolidated statements of
      operations.  During the three and nine month periods ended June 30,
      2006, the Company was judicially released from and reversed $161 and $339,
      respectively.  The Company expects to reverse amounts in future
      periods based on the recognition of the liabilities being judicially released
      in
      accordance with SFAS No. 140 of $12 remaining in fiscal 2007; $90 in fiscal
      2010; and $65 in fiscal 2011.





**Recently
      Issued Accounting Pronouncements**





In
      February 2007, the Financial
      Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option
      for Financial Assets and Financial Liabilities.”  This statement
      permits entities to choose to measure many financial instruments and certain
      other items at fair value.  The objective is to improve financial
      reporting by providing entities with the opportunity to mitigate volatility
      in
      reported earnings caused by measuring related assets and liabilities differently
      without having to apply complex hedge accounting provisions.  This
      statement is expected to expand the use of fair value
      measurement.  SFAS No. 159 is effective as of the beginning of an
      entity’s first fiscal year that begins after November 15, 2007.  The
      Company is currently in the process of determining the effects of adopting
      this
      statement in its consolidated financial statements.





In
      September 2006, the FASB issued SFAS
      No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
      Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106 and
      132R.”  This statement requires an employer to recognize the
      overfunded or underfunded status of a defined benefit postretirement plan as
      an
      asset or liability in its statement of financial position and to recognize
      changes in that funded status in the year in which the changes occur through
      comprehensive income.  This statement also requires an employer to
      measure the funded status of a plan as of the date of its year-end statement
      of
      financial position, with limited exceptions.  This statement also
      modifies the definition of current and non-current liabilities for purposes
      of
      presentation in the statement of financial position.  An employer is
      required to initially recognize the funded status of a defined benefit
      postretirement plan and to provide the required disclosures as of the end of
      the
      fiscal year ending after December 15, 2006 whereas the requirement to measure
      plan assets and benefit obligations as of the date of the employer’s fiscal
      year-end statement of financial position is effective for fiscal years ending
      after December 15, 2008.




**22**


The
      Company is currently in the process of determining the effects of adopting
      this
      statement in its consolidated financial statements.





In
      September 2006, the FASB issued SFAS
      No. 157, “Fair Value Measurements.”  This statement defines fair
      value, establishes a framework for measuring fair value in generally accepted
      accounting principles, and expands disclosures about fair value
      measurements.  SFAS No. 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years.  The Company is currently in the process of
      determining the effects of adopting this statement in its consolidated financial
      statements.





In
      September 2006, the SEC issued Staff
      Accounting Bulletin (“SAB”) No. 108, “Quantifying Financial Misstatements,”
which expresses the Staff’s views regarding the process of quantifying financial
      statement misstatements.  Registrants are required to quantify the
      impact of correcting all misstatements, including both the carryover and
      reversing effects of prior year misstatements, on the current year financial
      statements.  The financial statements would require adjustment when
      either approach results in quantifying a misstatement that is material, after
      considering all relevant quantitative and qualitative factors.  SAB
      No. 108 is effective for financial statements covering the first fiscal year
      ending after November 15, 2006.  The Company is currently in the
      process of determining the effects, if any, SAB No. 108 will have on the
      Company’s consolidated financial statements.





In
      June 2006, the FASB issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”),
      an interpretation of SFAS No. 109, “Accounting for Income Taxes,” which
      clarifies the accounting uncertainty in income taxes recognized in the financial
      statements in accordance with SFAS No. 109.  The interpretation
      prescribes a recognition threshold of more-likely-than-not and a measurement
      attribute on all tax positions taken or expected to be taken in a tax return
      in
      order to be recognized in the financial statements.  FIN 48 is
      effective for fiscal years beginning after December 15,
      2006.  Accordingly, the Company will adopt FIN 48 on October 1, 2007,
      and the Company is currently assessing the impact FIN 48 will have on its
      financial statements.





**Item
                3.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk**





Market
      risk is the potential loss
      arising from adverse changes in market rates and prices, such as interest rates,
      foreign currency exchange rates and changes in the market value of
      investments.  The Company’s primary market risk results from
      fluctuations in interest rates.





***Interest
      Rate
      Risk:***





§
            The
                Company has a five-year revolving and term loan agreement with its
                primary
                lender Merrill Lynch.  Interest rates under the agreements are
                variable and are based on the election of the Company of either a
                LIBOR
                rate or Prime rate.





§
            As
                of June 30, 2007, the outstanding balance on the term loan was $3,991
                and
                there was no balance on the revolving loan.  The effective
                annual interest rate on the term loan was 10.1% as of June 30,
                2007.  The Company does not believe that a hypothetical 10%
                change in end of the period interest rates or changes in future interest
                rates on these variable rate obligations would have a material effect
                on
                its financial position, results of operations, or cash
                flows.  The Company has not hedged its exposure to interest rate
                fluctuations.





***Foreign
      Currency Risk:***





§
            We
                sell our products to customers in the heavy truck, transit bus and
                off-road equipment industries.  For the nine month periods ended
                June 30, 2007 and 2006, the Company had foreign sales of approximately
                40%
                and 35% of net sales, respectively.  All worldwide sales in the
                first nine months of fiscal 2007 and 2006, with the exception of
                $600 and
                $163, respectively, were denominated in U.S. dollars.  During
                fiscal 2005, we established a manufacturing facility in Suzhou, China
                and
                we opened sales offices in Shanghai, China and Ismaning (which is
                near
                Munich), Germany.  The Company does not believe that changes in
                future exchange rates would have a material effect on its financial
                position, results of operations, or cash flows as the majority of
                its
                foreign sales transactions are currently denominated in US dollars
                and the
                investments in China and Germany are relatively small at this time
                in
                relation to our United States operations.  As a result, the
                Company has not entered into forward exchange or option contracts
                for
                transactions to hedge against foreign currency risk.  The
                Company will continue to assess its foreign currency risk as its
                international operations and sales
                increase.




**23**


***Investment
      Risk:***





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





**Item
                4.**
            **Controls
                and
                Procedures**





*Evaluation
      of Disclosure Controls and Procedures*





The
      Company’s Chief Executive Officer
      and Chief Financial Officer have evaluated the effectiveness of our disclosure
      controls and procedures as of the end of the period covered by this report
      pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the
“Exchange Act”)).  In designing and evaluating the disclosure controls
      and procedures, management recognizes that any controls and procedures, no
      matter how well designed and operated, can provide only reasonable assurance
      of
      achieving the desired control objectives.  In addition, the design of
      disclosure controls and procedures must reflect the fact that there are resource
      constraints and that management is required to apply its judgment in evaluating
      the benefits of possible controls and procedures relative to their
      costs.  Based on that evaluation, the Company’s Chief Executive
      Officer and Chief Financial Officer have concluded that, as of the end of the
      period covered by this report, our disclosure controls and procedures are
      effective in ensuring that information required to be disclosed in our Exchange
      Act reports is (1) recorded, processed, summarized and reported in a timely
      manner, and (2) accumulated and communicated to our management, including our
      Chief Executive Officer and Chief Financial Officer, as appropriate to allow
      timely decisions regarding required disclosure.





*Changes
      in Internal Controls*





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




































**24**


**Part
      II.  Other Information**





**Item
                1.**
            **Legal
                Proceedings**





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





**Item
                1A.**
            **Risk
                Factors**





There
      have been no significant changes
      in risk factors for the quarter ended June 30, 2007.  See the
      information set forth in the section entitled “Risk Factors” in our Annual
      Report on Form 10-K for the fiscal year ended September 30, 2006.





**Item
                2.**
            **Unregistered
                Sales of Equity 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**





2.01
            
            Asset
                Purchase Agreement, dated as of September 30, 2003, by and among
                the
                Registrant, Teleflex Incorporated and Teleflex Automotive Incorporated.
                *(Incorporated by reference to Exhibit 2.1 to the Registrant’s current
                report on Form 8-K filed on December 9, 2003)*3.01(a)
            
            Certificate
                of Incorporation of the Registrant, as amended. *(Incorporated by
                reference to Exhibit 3.01 (a) to the Registrant’s quarterly report on Form
                10-Q for the quarter ended December 31, 2006)*3.01(b)
            
            Certificate
                of Amendment to Certificate of Incorporation of the Registrant, dated
                February 27, 1995. *(Incorporated by reference to Exhibit 3.01 (b) to
                the Registrant’s quarterly report on Form 10-Q for the quarter ended
                December 31, 2006)*3.01(c)
            
            Certificate
                of Amendment to Certificate of Incorporation of the Registrant, dated
                October 28, 2004. *(Incorporated by reference to Exhibit 3.01 (c) to
                the Registrant’s quarterly report on Form 10-Q for the quarter ended
                December 31, 2006)*3.01(d)
            
            Certificate
                of Amendment to Certificate of Incorporation of the Registrant, dated
                February 22, 2005. *(Incorporated by reference to Exhibit 3.01 (d) to
                the Registrant’s quarterly report on Form 10-Q for the quarter ended
                December 31, 2006)*3.01(e)
            
            Certificate
                of Amendment to Certificate of Incorporation of the Registrant, dated
                March 2, 2006. *(Incorporated by reference to Exhibit 3.01 (e) to the
                Registrant’s quarterly report on Form 10-Q for the quarter ended December
                31, 2006)*




**25**




3.02
            
            Restated
                By-Laws of the Registrant, as amended July 1, 2002. *(Incorporated
                by reference to Exhibit 3.6 to the Registrant’s quarterly report on
                Form 10-Q, Commission File No. 000-18083, for the quarter ended
                June 30, 2002*)4.01
            
            Specimen
                Unit Certificate (including Specimen Certificate for shares of Common
                Stock and Specimen Certificate for the Warrants). *(Incorporated by
                reference to Exhibits 1.1 and 1.2 to the Registrant’s Registration
                Statement on Form 8-A, Commission File No. 000-18083, filed with
                the
                Commission on November 1, 1989)*4.02
            
            Certificate
                to Provide for the Designation, Preferences, Rights, Qualifications,
                Limitations or Restrictions Thereof, of the Series A Preferred Stock,
                71/2%
                Redeemable Convertible Series *(Incorporated by reference to
                Exhibit 3.1 to the Registrant’s quarterly report on Form 10-Q,
                Commission File No. 000-18083,  for the quarter ended
                March 31, 1998*)4.03
            
            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,
                Commission File No. 000-18083,  for the quarter ended
                June 30, 2002*)4.04
            
            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, Commission File No. 000-18083,
                filed on July 5, 2002*)4.05
            
            Certificate
                of Elimination for Mandatory Preferred Stock *(Incorporated by
                reference to Exhibit (d)(vi) to the Schedule TO-I/A, Commission File
                No. 000-18083, filed on July 5, 2002*)4.06
            
            Certificate
                of Amendment to the Designation, Preferences, Rights, Qualifications,
                Limitations or Restrictions Thereof, of the Series A-1 Preferred
                Stock,
                Non-Redeemable Convertible Series *(Incorporated by reference to the
                Registrant’s report on Form 8-K, filed on September 29,
                2004)*4.07
            
            Certificate
                to Provide for the Designation, Preferences, Rights, Qualifications,
                Limitations or Restrictions Thereof, of the Series C Preferred Stock,
                15%
                Redeemable Non-Convertible Series *(Incorporated by reference to the
                Registrant’s report on Form 8-K, filed on September 29,
                2004)*4.08
            
            Certificate
                of Amendment to the 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 the Registrant’s report on Form 8-K,
                filed on September 29, 2004)*31.01
            
            Certification
                of Chief Executive Officer
                required by Rule 13a-14(a) or Rule 15d-14(a) *(Filed
                herewith)*31.02
            
            Certification
                of Chief Financial Officer
                required by Rule 13a-14(a) or Rule 15d-14(a) *(Filed
                herewith)*32.01
            
            Certification
                of Patrick W. Cavanagh pursuant
                to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002 *(Filed
                herewith)*32.02
            
            Certification
                of Dennis E. Bunday pursuant to
                18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002 *(Filed
                herewith)*








**26**


**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
                10,
                2007
            
            /s/ PATRICK
              W.
              CAVANAGHPatrick
                W. Cavanagh*President
              and Chief Executive
              Officer*Date:  August
              10, 2007
            
            /s/
              DENNIS E. BUNDAYDennis
              E. Bunday*Chief
              Financial Officer*



































**27**