UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549__________________

FORM 10-K

(Mark One)[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: September
30, 2007

OR

[   ] 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               | (I.R.S. Employer Identification
No.)
|incorporation or organization)                |                                     
|                                             
|**14100 SW 72****ndAvenue**                   |                                     
|**Portland,
    Oregon**                      | **97224**                           
|(Address of
      principal executive office) | (Zip
      code)                    

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

Securities registered pursuant to
Section 12(b) of the Act:None

Securities registered pursuant to
Section 12(g) of the Act:Common Stock
($.01 par value)

Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [   ] No [ X ]

Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes [   ] No [ X ]

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 if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [   ]

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 [ X ] | Non-accelerated filer [  
    ]
|--------------------------------- | ----------------------- | -------------------------------

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act)      Yes [   ] No [ X ]

---

The aggregate market value of voting
common shares (based upon the closing price of the shares as reported on the
NASDAQ Global Market) of Williams Controls, Inc. held by non-affiliates was
approximately $91,819,426 as of March 31, 2007.

As of December 1, 2007, there were
7,511,647 shares of Common Stock outstanding.

Documents Incorporated by
Reference

The Registrant has incorporated by
reference into Part II and Part III of this Form 10-K portions of itsProxy
Statement for the Annual Meeting of Stockholders to be held February 27,
2008.

2

---

Williams Controls, Inc.

Index to 2007 Form 10-K

|           |                |  |                                                                                                                          | Page 
|---------- | -------------- |  | ------------------------------------------------------------------------------------------------------------------------ | -----
|Part I     |                |  |                                                                                                                         
|           | Item
      1.  |  | Business                                                                                                                 | 4-8  
|           | Item 1A.       |  | Risk Factors                                                                                                             | 9-11 
|           | Item
      1B. |  | Unresolved
      Staff Comments                                                                                          | 11   
|           | Item 2.        |  | Properties                                                                                                               | 11   
|           | Item
      3.  |  | Legal
      Proceedings                                                                                                  | 11-12
|           | Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                                      | 12   
|           |               
|Part II    |                |  |                                                                                                                         
|           | Item
      5.  |  | Market for
      Registrants Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities | 13   
|           | Item 6.        |  | Selected Financial Data                                                                                                  | 13   
|           | Item
      7.  |  | Managements
      Discussion and Analysis of Financial Condition and Results of
      Operations                        | 14-23
|           | Item 7A.       |  | Quantitative and Qualitative Disclosures About Market
Risk                                                               | 23   
|           | Item
      8.  |  | Financial
      Statements and Supplementary Data                                                                        | 24   
|           | Item 9.        |  | Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure                               | 55   
|           | Item
      9A. |  | Controls and
      Procedures                                                                                            | 55   
|           | Item 9B.       |  | Other Information                                                                                                        | 55   
|           |               
|Part III   |                |  |                                                                                                                         
|           | Item
      10. |  | Directors
      and Executive Officers of the Registrant                                                                 | 56   
|           | Item 11.       |  | Executive Compensation                                                                                                   | 56   
|           | Item
      12. |  | Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters               | 56   
|           | Item 13.       |  | Certain Relationships and Related Transactions                                                                           | 56   
|           | Item
      14. |  | Principal
      Accountant Fees and Services                                                                             | 56   
|           |               
|Part IV    |                |  |                                                                                                                         
|           | Item
      15. |  | Exhibits and
      Financial Statement Schedules                                                                         | 57   
|           |               
|Signatures |                |  | 58                                                                                                                      

3

---

WILLIAMS CONTROLS, INC.FORM
10-K

PART I(Dollar amounts in thousands, unless otherwise indicated)

ITEM 1. BUSINESS

We are a
Delaware corporation formed in 1988. The following are our wholly-owned
subsidiaries:

***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 our 80% owned subsidiaries Hardee Williams, Inc. (Hardee) and
Waccamaw Wheel Williams, Inc. (Waccamaw).

General

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.

In 2005 we began production of
electronic sensors for use in our electronic throttle control systems. In
addition to internal use, we also have the capability of selling sensors as
separate product lines. Electronic sensors are a significant component of our
electronic throttle controls. Prior to 2005, we purchased contacting sensors for
use in our heavy truck, transit bus and off-road product lines from third
parties. The two principal sensor technologies are contacting and
non-contacting. In fiscal 2005 we began developing sensors for use in our
products. As part of our sensor development strategy, we obtained a license to
use certain non-contacting sensor technology from Moving Magnet Technology S.A..
In the second half of fiscal 2006 we began serial production of both contacting
and non-contacting sensors. During 2006 and 2007, we converted a majority of our
sensor usage to our internally produced sensors.

Adjustable foot pedals are devices
which move the throttle, brake and, if applicable, the clutch pedal, closer or
further away from the vehicle driver to compensate for driver heights. We have a
licensing agreement for an adjustable pedal technology, which allows us to sell
adjustable pedals in the medium and heavy truck and transit bus markets. We
consider adjustable foot pedals to be a value added addition to our primary
electronic throttle control product line. During the year ended September 30,
2006, we sold our first adjustable pedal units. We expect sales of these
products to continue to grow throughout fiscal 2008 and beyond.

During the year ended September 30,
2007, we sold approximately 59% of our products in the United States, 12% to
Canada and Mexico for vehicles that are in part produced for the United States
market, and approximately 29% to other international markets. We sell the
majority of our products directly to large heavy truck, transit bus and off-road
original equipment manufacturers worldwide. Our largest customers include The
Volvo Group, Paccar, Inc., Freightliner, LLC, Navistar International
Corporation, Caterpillar, Inc., and Hyundai Motor, Co. We also sell our products
through a network of independent distributors and representatives, which sell to
smaller original equipment manufacturers and to truck and bus owners as
replacement parts.

4

---

Prior to 2005, all of our products
were produced in, and sold from, our Portland, Oregon facility. To better
address existing and developing international heavy truck, transit bus and
off-road markets, during fiscal 2005 we established a manufacturing facility in
Suzhou, China and opened sales offices in Shanghai, China and Ismaning (which is
near Munich), Germany. In 2006, we entered into an exclusive distributor
representative relationship to market and sell our products into the Indian
market.

While we believe we are the leader
in the market for electronic throttle control systems for heavy trucks, transit
busses and off-road equipment, the markets for our products are highly
competitive worldwide. Certain of our competitors have substantial financial
resources and significant technological capabilities. While our Suzhou, China
manufacturing facility enables us to serve developing international markets, we
believe this facility also enables us to compete more effectively in all of the
markets, including domestic markets, we serve. We 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.

Realignment of
Operations

During the second
quarter of fiscal year 2006, the Company initiated a plan for realignment (the
plan) of its Portland, Oregon manufacturing operations as part of ongoing
efforts to focus on its core product competencies and improve its global
competitiveness. The plan was completed in fiscal 2007. The plan consisted 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 eliminated 50 hourly and 2 salaried positions from its Portland,
Oregon facility during fiscal 2007. As part of the plan, the Company incurred a
one-time termination benefit in relation to those employees affected by the
plan.

The total costs of the plan were
approximately $1.5 million and include costs related to hourly and salaried
termination benefits of $605; 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 classified in financial statement line items other than realignment of
operations expense. The Company recorded realignment expenses of $737 and $582,
respectively, for the twelve month periods ended September 30, 2007 and 2006,
which were recorded in operating expenses in the accompanying consolidated
statements of operations.

Competition

We believe we are the worldwide
market leader for electronic throttle control systems for heavy trucks, transit
busses and off-road vehicles. We believe we are the largest domestic producer in
the market. We have a much smaller portion of the European and Asian markets.
The markets for our products are highly competitive, with many of our
competitors having substantial financial resources and significant technological
capabilities. Our competitive position varies among our product lines.

The major competitors for our
electronic throttle controls include AB Eletronik GmbH, Teleflex, Inc., Siemens
VDO Automotive AG, Felsted Products, LLC, Hella KGaA Hueck & Co., Heinrich
Kubler AG (KSR), and Comesys, Ltd. Other companies, including Dura Automotive
Systems, Inc. and CTS Corporation compete in the passenger car and light truck
market and may attempt to compete in the heavy truck and transit bus market in
the future.

We also manufacture pneumatic
control systems for the diesel heavy truck, transit bus and off-road vehicles
markets. The market for these pneumatic control systems is highly competitive
and characterized by many competitors. Many of the customers for these products
are the same customers as for our heavy truck and transit bus electronic
throttle control systems.

5

---

When choosing among competing
electronic throttle control systems, we believe purchasers of these systems
focus on price, quality, value added engineering and reputation. In addition, we
believe attainment of the TS 16949 quality certification and the ISO 14001
Environmental Management System certification are critical to qualifying as a
supplier. Our two manufacturing facilities in Portland and Suzhou have attained
the TS 16949 and ISO 14001 certifications and our entire product line is
produced using these standards.

Marketing and
Distribution

We sell our products to customers
primarily in the heavy truck, transit bus and off-road equipment industries. For
the years ended September 30, 2007, 2006 and 2005, The Volvo Group accounted for
17%, 16% and 18%, Paccar, Inc. accounted for 14%, 17% and 17%, Freightliner, LLC
accounted for 13%, 17% and 18%, Navistar International Corporation accounted for
6%, 8% and 7% and Caterpillar, Inc. accounted for 6%, 5% and 5%, of net sales
from continuing operations, respectively. Approximately 41%, 36% and 35% of net
sales in fiscal 2007, 2006 and 2005 respectively, were to customers outside of
the United States, primarily in Canada, Belgium, Sweden, Mexico and Korea, and,
to a lesser extent, in other European countries, South America, Pacific Rim
nations and Australia. We market our products from our sales facilities in
Portland, Oregon, Shanghai, China, Ismaning (Munich), Germany and through
distributor networks.

In fiscal 2007, 2006 and 2005,
approximately 84% of our sales were from sales of electronic throttle controls,
with the remainder being sales of pneumatic control systems.

Environmental

We produce small quantities of
hazardous wastes in our operations and we are subject to federal and state air,
water and land pollution control laws and regulations. Compliance with these
laws generally requires operating costs and capital expenditures. Substantial
liability may result from the failure to properly handle hazardous wastes. We
use our best efforts to ensure that all hazardous wastes are handled in
accordance with applicable federal, state and local laws and
regulations.

The soil and groundwater at our
Portland, Oregon facility contain certain contaminants, which were deposited
from approximately 1968 through 1995. Some of this contamination has migrated
offsite to neighboring properties. We have retained an environmental consulting
firm to investigate the extent of the contamination and to determine what
remediation will be required and the associated costs. During fiscal 2004, we
entered into the Oregon Department of Environmental Qualitys voluntary clean-up
program and during fiscal 2004 we established a liability of $950 for this
matter. At September 30, 2007, we recorded an additional liability of $546 based
on remaining cost estimates determined by our environmental consulting firm. As
of September 30, 2007, the total liability recorded is $1,046 (and excludes any
potential claim recovery as discussed below) and is recorded in accrued expenses
in the consolidated balance sheets. We have asserted a contractual indemnity
claim against Dana Corporation (Dana), from which we acquired the property,
and contribution claims against other prior owners of the property as well as
businesses previously located on the property (including Blount, Inc. (Blount)
under the Federal Superfund Act and the Oregon Cleanup Law. Dana is subject to a
pending bankruptcy petition. On November 20, 2007, the Company and Blount
executed a settlement agreement with Dana with respect to these claims. Dana is
submitting the settlement agreement to the bankruptcy court for approval; the
settlement agreement also is contingent on the courts approval of Danas
proposed plan of reorganization in substantially the form described in Danas
disclosure statement in effect as of this same date. If the settlement agreement
is approved by the bankruptcy court and the plan of reorganization is approved,
Blount will be obligated to pay us $625 and the Companys claim against Dana
will be allowed as an unsecured general creditors claim in the amount of $750.
We anticipate the claim will be discounted and paid primarily in stock in the
reorganized corporation, all in accordance with Danas plan of reorganization.
At this time we are not able to reasonably estimate the net amount we may be
able to realize from this unsecured claim.

We believe that even with a
resolution of the claims against the prior operators and owner of the property,
we will be liable for some portion of the ultimate costs.

Government
Regulation

Our vehicle component products must
comply with the National Traffic and Motor Vehicle Safety Act of 1966, as
amended, and regulations promulgated there under, which are administered by the
National Highway Traffic Safety Administration (NHTSA). If, after an
investigation, NHTSA finds that we are not in compliance with any of its
standards or regulations, among other things, it may require that we recall
products found not to be in compliance, and repair or replace such products.
During fiscal 2007, we had no product recalls. We are not aware of any instances
of non-compliance with the statute and applicable regulations.

6

---

Product Research and
Development

We conduct engineering, research and
development and quality control activities to maintain and improve the
performance, reliability and cost-effectiveness of our products. Our engineering
staff works closely with our customers to design and develop new products and to
adapt existing products for new applications. During fiscal 2007, 2006 and 2005,
the Company spent $3,145, $3,412 and $3,233, respectively, on these activities.
We anticipate that these expenses may increase with expansion into markets and
new products.

Patents, Trademarks and
Licenses

We believe our products generally
have strong name recognition in their respective markets. We own numerous
patents, primarily under the Williams name, which expire at various times. We
believe that, in the aggregate, the rights under our patents are generally
important to our operations. We do not, however, consider any patent or group of
patents to be of material importance to our total business.

During fiscal 2003 the Company
obtained a license agreement for use in our adjustable pedal product lines. This
initial agreement was for an initial period of three years and contained
provisions to be subsequently renewed annually if certain sales thresholds were
met. The Company met the sales thresholds effective July 2006 and 2007,
therefore the agreement is currently extended through July 2008. The Company is
obligated to make royalty payments based on the number of units it sells. During
the years ended September 30, 2007 and 2006, we sold adjustable pedals and
recorded an accrual for royalties related to these sales of $6 and $4,
respectively. No adjustable pedals were sold prior to fiscal 2006. 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 years ended September 30, 2007 and 2006,
we amortized approximately $11 and $3, respectively, related to the number of
units sold. We have focused additional resources in the adjustable pedal market
and we expect sales of these products to continue to grow.

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

In fiscal 2005, we entered into an
agreement with Moving Magnet Technology SA (MMT) to license non-contacting
Hall effect sensor technology. We intend to use this license to internally
produce non-contacting sensors for use in our electronic throttle controls. The
initial licensing fee of $140 was paid and capitalized during fiscal 2005. We
are amortizing this license fee over a five year period commencing during the
first quarter of fiscal 2006. For the years ended September 30, 2007 and 2006,
we amortized $28 and $23, respectively, of this initial licensing fee. In
addition, we will make royalty payments based on the number of units sold, which
includes minimum yearly royalties beginning in year three of this agreement.
During the years ended September 30, 2007 and 2006, we recorded royalty payments
of $134 and $9, respectively, related to units sold during those periods. We
capitalized, as part of the license fee, $229 which is equal to the present
value of the minimum royalty payment obligation. 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.

Raw Materials; Reliance on Single
Source Suppliers

We produce certain of our products
from raw materials, including brass, aluminum, steel, plastic, rubber and zinc,
which currently are widely available at reasonable terms, but are subject to
volatility of prices due to fluctuations in the commodity markets. We
manufacture certain foot pedals using a contact position sensor manufactured for
Caterpillar, Inc., by a third party sensor manufacturer, which is used
exclusively on Caterpillar engines. Caterpillar supplies this sensor and
requires that its sensor be used on all Caterpillar engines; therefore, we do
not consider the Caterpillar sensor supply to be at risk. We purchase other
component parts from suppliers, none of which is considered a single source
supplier. Although these suppliers have been able to meet our needs on a timely
basis, and appear to be willing to continue being suppliers, there is no
assurance that a disruption in a suppliers business, such as a strike, would
not disrupt the supply of a component.

7

---

Zinc, aluminum and energy commodity
demand has resulted in price increases causing higher costs for some of our
components. Although component prices have increased, we have not been subject
to supply constraints as a result of the increased demand.

Product Warranty

We warrant our products to the first
purchaser and subsequent owners against malfunctions occurring during the
warranty period resulting from defects in material or workmanship, subject to
specified limitations. The warranty on vehicle components is limited to a
specified time period, mileage or hours of use, and varies by product,
application and customer. We have established a warranty liability based upon
our estimate of the future cost of warranty and related service costs. We
regularly monitor our warranty liability for adequacy in response to historical
experience and other factors.

Employees

Our employees engaged in the
manufacturing and vehicle components in the Portland, Oregon facility are
represented by the International Union, United Automobile Workers of America and
Amalgamated Local 492. The current five-year labor agreement expires on August
31, 2008. As of September 30, 2007, we employed a total of 49 people pursuant to
this labor agreement. As of September 30, 2007, we employed approximately 90
non-union employees in our Portland, Oregon facility, of which approximately 16
were engaged in manufacturing and approximately 74 were engaged in sales,
engineering and administrative functions. As of September 30, 2007, we employed
101 employees in China, of which approximately 74 were engaged in manufacturing
and approximately 27 engaged in administrative functions. We also employed 2
employees in Europe as of September 30, 2007.

Forward-Looking
Statements

This report on Form 10-K contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include, without
limitation, those statements relating to development of new products, the
financial condition of the Company and the ability to increase distribution of
our products. Forward-looking statements can be identified by the use of
forward-looking terminology, such as may, will, should, expect,
anticipate, estimate, continue, plans, intends, or other similar
terminology. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, such forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those indicated by the forward-looking statements. These risks
and uncertainties are beyond our control and, in many cases, we cannot predict
the risks and uncertainties that could cause our actual results to differ
materially from those indicated by the forward-looking statements.

The forward-looking statements are
made as of the date hereof, and, except as otherwise required by law, we
disclaim any intention or obligation to update or revise 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.

Investors are cautioned to consider
the risk factors identified below when considering forward-looking statements.
If any of these items actually occur, our business, results of operations,
financial condition or cash flows could be materially adversely
affected.

Available
Information

The Company maintains a website on
the Internet at www.wmco.com. The Company makes available free of charge through
its website, by way of a hyperlink to a third-party SEC filing website, its
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section
13 (a) or 15 (d) of the Exchange Act. Such information is available as soon as
such reports are filed with the SEC. The information on our website is not part
of this report.

8

---

ITEM 1A. RISK FACTORS

An investment in our common stock
involves a high degree of risk. You should carefully consider the risks
discussed below and the other information in this report on Form 10-K before
deciding whether to invest in our common stock.

Risks related to our
business:

A significant portion of our sales
are derived from a limited number of customers, and results of operations could
be adversely affected and stockholder value harmed if we lose any of these
customers.

A significant portion of our
revenues historically have been derived from a limited number of customers. For
the years ended September 30, 2007, 2006 and 2005, The Volvo Group accounted for
17%, 16% and 18%, Paccar, Inc. accounted for 14%, 17% and 17%, Freightliner, LLC
accounted for 13%, 17% and 18%, Navistar International Corporation accounted for
6%, 8% and 7% and Caterpillar, Inc. accounted for 6%, 5% and 5%, of net sales
from continuing operations, respectively. The loss of any significant customer
would adversely affect our revenues and stockholder value.

Demand for equipment on which our
products are installed may decrease, which could adversely affect our revenues
and stockholder value.

We sell our products primarily to
manufacturers of heavy trucks, transit busses and off-road equipment. If demand
for our customers vehicles or equipment decreases, demand for our products
would decrease as well. This decrease in demand would adversely impact our
revenues and stockholder value.

Our products could be recalled,
which could increase our costs and decrease our revenues.

Our vehicle component products must
comply with the National Traffic and Motor Vehicle Safety Act of 1966, as
amended, and regulations promulgated thereunder, which are administered by the
National Highway Traffic Safety Administration (NHTSA). If NHTSA finds that we
are not in compliance with its standards or regulations, it may, among other
things, require that we recall products found not to be in compliance, and
repair or replace such products. Such a recall could increase our costs and
adversely impact our reputation in our industry, both of which would adversely
affect our revenues, profit margins, results of operations and stockholder
value. We experienced such a recall with respect to certain of our products in
fiscal 2001.

We purchase raw materials and
component parts from suppliers and changes in the relationships with such
suppliers, as well as increases in the costs of such raw materials and/or
component parts, would adversely affect our ability to produce and market our
products, which would adversely affect our profit margins, results from
operations and stockholder value.

We purchase raw materials and
component parts from suppliers to be used in the manufacturing of our products.
If a supplier is unable or unwilling to provide us with such raw materials
and/or component parts, we may be unable to produce certain products, which
could result in a decrease in revenue and adversely impact our reputation in our
industry. Also, if prices of such raw materials and/or component parts increase
and we are not able to pass on such increase to our customers, our profit
margins would decrease. The occurrence of either of these would adversely affect
our results from operations and stockholder value.

Our products could be subject to
product liability claims by customers and/or consumers, which would adversely
affect our profit margins, results from operations and stockholder
value.

A significant portion of our
products are used on heavy trucks and transit busses. If our products are not
properly designed or built and/or personal injuries are sustained as a result of
our equipment, we could be subject to claims for damages based on theories of
product liability and other legal theories. We maintain liability insurance for
these risks; however, the costs and resources to defend such claims could be
substantial, and if such claims are successful, we could be responsible for
paying some or all of the damages. Also, our reputation could be adversely
affected, regardless of whether such claims are successful. Any of these results
would adversely affect our profit margins, results from operations and
stockholder value. We are currently named as a co-defendant in a product
liability case that seeks class action. Refer to ITEM
3  LEGAL PROCEEDINGS.

9

---

Work stoppages or other changes in
the relationships with our employees could make it difficult for us to produce
and effectively market our products, which would adversely affect our profit
margins, results from operations and stockholder value.

If we experience
significant work stoppages, as we did in fiscal 2003, we likely would have
difficulty manufacturing our products. Also, our labor costs could increase and
we may not be able to pass such increase on to our customers. The occurrence of
either of the foregoing would adversely affect profit margins, results from
operations and stockholder value.

Our defined benefit pension plans
are under-funded and, therefore, we may be required to increase our
contributions to the plans, which would adversely affect our cash
flows.

We maintain two defined benefit
pension plans among the retirement plans we sponsor. No new employees are being
admitted to participate in these two plans. Participants in these two plans are
entitled to a fixed formula benefit upon retirement. Although we make regular
contributions to these two plans in accordance with minimum ERISA funding
requirements, investment earnings may be less than expected, and we may be
required to increase contributions to the under-funded plan(s), which would
adversely affect our cash flows.

Risks related to environmental
laws:

The soil and groundwater at our
Portland, Oregon facility contains certain contaminants that may require us to
incur substantial expense to investigate and remediate, which would adversely
affect our profit margins, results from operations and stockholder
value.

The soil and groundwater at our
Portland, Oregon facility contain certain contaminants. Some of this
contamination has migrated offsite to neighboring properties and potentially to
other properties. We have 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, we entered the Oregon Department of Environmental Qualitys
voluntary clean-up program and during fiscal 2004 we established a liability of
$950 for this matter. At September 30, 2007, we recorded an additional
liability of $546 and as of September 30, 2007, this liability totaled $1,046.
Our overall costs could exceed this liability, which could adversely affect our
profit margins, results from operations and stockholder value.

We are required to comply with
federal and state environmental laws, which could become increasingly expensive
and could result in substantial liability if we do not comply.

We produce small quantities of
hazardous waste in our operations and are subject to federal and state air,
water and land pollution control laws and regulations. Compliance with such laws
and regulations could become increasingly costly and the failure to comply could
result in substantial liability. Either of these results could increase
expenses, thereby adversely affecting our profit margins and stockholder
value.

Risks related to foreign operations:

Fluctuations in the value of
currencies could adversely affect our international sales, which would result in
reduced revenues and stockholder value.

We sell products in Canada, Belgium,
Sweden, Mexico, South America, the Pacific Rim nations, Australia, China and
certain European nations, purchase components from suppliers in China and
Europe, have a manufacturing and sales operation in China, and a sales and
technical center in Germany. For the years ended September 30, 2007, 2006 and
2005, foreign sales were approximately 41%, 36%, and 35% of net sales,
respectively. Although currently virtually all of our sales and purchases are
made in U.S. dollars, we anticipate that over time more of our purchases of
component parts and sales of our products will be denominated in foreign
currencies. We do not presently engage in any hedging of foreign currency risk.
In the future, our operations in the foreign markets will likely become subject
to fluctuations in currency values between the U.S. dollar and the currency of
the foreign markets. Our results from operations and stockholder value could be
adversely affected if currency of any of the foreign markets increases in value
relative to the U.S. dollar.

10

---

Complying with the laws applicable
to foreign markets may become more difficult and expensive in the future, which
could adversely affect our results from operations and stockholder
value.

Our operations in foreign markets
are subject to the laws of such markets. Compliance with these laws may become
more difficult and costly in the future. In addition, these laws may change and
such change may require us to change our operations. Any of these results could
adversely affect our results from operations and stockholder value by increasing
expenses and reducing revenues, thereby reducing profits.

Political and economic instability
in the foreign markets may make doing business there more difficult and costly,
which could adversely affect our results from operations and stockholder
value.

Economic and political instability
may increase in the future in foreign markets. Such instability may make it more
difficult to do business in those countries, may make it more expensive to do so
and could disrupt supplies of components into our Portland or Suzhou facilities.
If our operations were nationalized by the government of China, this could cause
us to write off the value of our operations in such foreign markets and
eliminate revenues generated by such operations. Any of these results could
result in onetime charges or increased expenses as well as lower revenues, which
would adversely affect our results of operations and harm stockholder
value.

Risks Related to our Capital
Structure:

The market price of our stock has
been and may continue to be volatile, which could result in losses for
stockholders.

Our common stock is currently listed
on the NASDAQ Capital Market and is thinly traded. Prior to October 9, 2006 our
stock was traded on the OTC Bulletin Board. Volatility of thinly traded stocks
is typically higher than the volatility of more liquid stocks with higher
trading volumes. The market price of our common stock has been and, in the
future, could be subject to significant fluctuations as a result of the
foregoing, as well as variations in our operating results, announcements of
technological innovations or new products by us or our competitors,
announcements of new strategic relationships by us or our competitors, general
conditions in our industries or market conditions unrelated to our business and
operating results. Any of these results could adversely impact stockholder
value.

ITEM 1B. UNRESOLVED STAFF
COMMENTS

None.

ITEM 2. PROPERTIES

We own a 120,000 square feet
manufacturing facility and office building in Portland, Oregon. We believe the
Portland facility is adequate for our existing needs and the needs for the
foreseeable future. This manufacturing facility is equipped with the machinery
and equipment necessary to manufacture and assemble our products. We believe
that this facility has been maintained adequately.

We lease approximately 63,000 square
feet in Suzhou, China for our Williams Controls Asia operation, approximately
500 square feet for our Shanghai, China sales office, and approximately 1,600
square feet for our Williams Controls Europe operation. We believe that these
facilities will be adequate to meet our existing needs and our needs for the
foreseeable future.

ITEM 3. LEGAL
PROCEEDINGS

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

11

---

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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS

No matters were submitted to a vote
of security holders during the fourth quarter of fiscal 2007.

12

---

PART II

|**ITEM 5.** |  | MARKET FOR REGISTRANTS COMMON
      EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
|----------- |  | ------------------------------------------------------------------------------------------------------------------------

Effective October 9, 2006, our common stock is quoted on the NASDAQ
Global Market under the symbol WMCO. Prior to this date, our common stock was
quoted on the over the counter bulletin board (OTC Bulletin Board) under the
symbol WCON.

The range of high and low bid-closing quotations for our common stock for
each fiscal quarter for the past two fiscal years is as follows. 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 reverse split was effective March 16, 2006 and for the
applicable closing prices below, they have been restated to reflect the effect
of the one-for-six reverse stock split.

|                    |  | 2007 |       | 2006
|------------------- |  | ---- | ----- | ----
|                    |  | High |       | Low 
|First
      Quarter |  | $    | 14.94 |     
|Second Quarter      |  | $    | 17.71 |     
|Third
      Quarter |  | $    | 17.96 |     
|Fourth Quarter      |  | $    | 18.05 |     

There were 319 record holders of our common stock as of December 1, 2007.
We have never paid a dividend with respect to our common stock and currently
have no plans to pay a dividend on our common stock.

ITEM 6. SELECTED FINANCIAL DATA(Dollars in thousands - except per
share amounts)

|Consolidated Statement of
      Operations Data:       |  | Year ended
      September 30
|------------------------------------------------------ |  | -----------------------------
|                                                       |  | 2007                         
|Net
      sales from continuing operations             |  | $                            
|Net income (loss) from
      continuing operations     |  |                              
|Net
      income (loss)                                |  |                              
|Income (loss) from
      continuing operations  basic |  |                              
|Income (loss) from continuing operations  diluted     |  |                              
|Net income (loss) per
      common share  basic       |  |                              
|Net
      income (loss) per common share  diluted     |  |                              
|Cash dividends per common
      share                  |  |                              
|                                                      
|Consolidated Balance Sheet
      Data:                 |  | September
      30           
|                                                       |  | 2007                         
|Current Assets                                         |  | $                            
|Current Liabilities                                    |  |                              
|Working Capital                                        |  |                              
|Total Assets                                           |  |                              
|Long-Term Liabilities                                  |  |                              
|Stockholders Equity
      (deficit)                   |  |                              

|(1) |  | The 2004 data includes a loss on
      extinguishment of debt of $19,770, a loss of $178 from discontinued
      operations, a gain of $209 from the settlement of a sales tax obligation
      of Aptek and a $210 gain from the extinguishment of old outstanding
      accounts payable balances of various insolvent subsidiaries.                                                                                                                                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The 2003 data includes a gain on
      a settlement with a customer of $951 and a net loss of $108 from
      discontinued operations. In 2003, the Company adopted Statement of
      Financial Accounting Standards No. 150, Accounting for Certain Financial
      Instruments with Characteristics of Both Liabilities and Equity (SFAS No.
      150). In accordance with SFAS No. 150, the redeemable preferred stock of
      $16,072 at September 30, 2003 is included in long-term
    liabilities.

13

---

|**ITEM
      7.** |  | **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 year period
ended September 30, 2007. This section should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
document. Statements in this report that relate to future results and events are
based on our current expectations. Actual results in future periods may differ
materially from those currently expected or desired because of a number of risks
and uncertainties. For a discussion of factors affecting our business, see
ITEM 1  BUSINESS in this Annual Report on Form 10-K.

Overview

During fiscal
2007, we saw our net sales decrease $5,710 or 7.7% primarily due to new emission
standards for the NAFTA market that went into effect January 1, 2007. Our NAFTA
sales during fiscal 2007 decreased approximately 15% from the prior year.
Offsetting the reduction in sales for NAFTA, we saw significant increases in
sales in fiscal 2007 to the European and Asian markets of 15% each over fiscal
2006 levels. For the year ended September 30, 2007, we sold approximately 59% of
our products in the United States, 12% to Canada and Mexico for vehicles that
are in part produced for the United States market and approximately 29% to other
international markets. In fiscal 2006, approximately 64% of our products were
sold in the United States, 14% were sold to Canada and Mexico for vehicles that
are in part produced for the United States market and approximately 22% to other
international markets. Net income in fiscal 2007 was $7,937, compared to net
income in fiscal 2006 of $9,549. As a result of increases in cash flows from
operations, we paid down our outstanding debt by $7,540 in fiscal
2007.

Events during the
year ended September 30, 2007 include the following:

- On October 9, 2006 the Companys common stock
  began trading on the NASDAQ Global Market under the trading symbol WMCO.
  Prior to that time, the Companys common stock was listed on the OTC Bulletin
  Board market under the trading symbol WCON.
- We substantially completed our previously
  announced realignment of our Portland, Oregon manufacturing operations during
  fiscal 2007. This realignment continued our ongoing efforts to focus on our
  core product lines and improve our global competitiveness. As part of this
  realignment, we have outsourced all of our die casting and machining
  operations to high-quality suppliers, primarily in Asia, and have relocated
  the assembly of pneumatic products to our manufacturing facility in Suzhou,
  China.

As we move
forward into fiscal 2008 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.

14

---

Results of
Operations

Financial Summary(Dollars in
Thousands)

|                                |  |      |        |      |   |        |      | **2006** to |        | **2005** to
|------------------------------- |  | ---- | ------ | ---- | - | ------ | ---- | ----------- | ------ | -----------
|                                |  | 2007 |        | 2006 |   | 2005   |      | **2007**    |        | **2006**   
|Net sales                       |  | $    | 68,924 |      | $ | 74,634 |      | $           | 67,416 |            
|Cost of
      sales             |  |      | 45,152 |      |   | 48,108 |      |             | 44,403 |            
|                               
|Gross profit                    |  |      | 23,772 |      |   | 26,526 |      |             | 23,013 |            
|                               
|Research and development        |  |      | 3,145  |      |   | 3,412  |      |             | 3,233  |            
|Selling                         |  |      | 2,163  |      |   | 2,065  |      |             | 1,342  |            
|Administration                  |  |      | 5,898  |      |   | 5,640  |      |             | 5,696  |            
|Realignment of
      operations |  |      | 737    |      |   | 582    |      |             | -      |            
|                                |  |      |        |      |   |        |      |             |        |            
|Operating income                |  | $    | 11,829 |      | $ | 14,827 |      | $           | 12,742 |            
|                               
|As a percentage of net sales:   |  |      |        |      |   |        |      |             |        |            
|Cost of sales                   |  |      | 65.5   | %    |   |        | 64.5 | %           |        |            
|Gross margin                    |  |      | 34.5   | %    |   |        | 35.5 | %           |        |            
|Research and development        |  |      | 4.6    | %    |   |        | 4.6  | %           |        |            
|Selling                         |  |      | 3.1    | %    |   |        | 2.8  | %           |        |            
|Administration                  |  |      | 8.6    | %    |   |        | 7.6  | %           |        |            
|Realignment of operations       |  |      | 1.1    | %    |   |        | 0.8  | %           |        |            
|Operating income                |  |      | 17.2   | %    |   |        | 19.9 | %           |        |            

NM  not meaningful

Comparative Years Ended September
30, 2007, 2006 and 2005

|                                       |  |          |  |          |  |          |  | **Percent Change**
|-------------------------------------- |  | -------- |  | -------- |  | -------- |  | ------------------
|                                       |  |          |  |          |  |          |  | **2006 to**       
|For the Year Ended September
      30: |  | **2007** |  | **2006** |  | **2005** |  | **2007**          
|Net sales                              |  | $ 68,924 |  | $ 74,634 |  | $ 67,416 |  | (7.7)%            

Net sales
decreased $5,710 for the year ended September 30, 2007 as compared to the year
ended September 30, 2006, primarily due to an overall decrease of 15% in sales
volumes of electronic throttle control systems in the North American market.
Overall, in the North American market, sales to truck customers were down
approximately 36% while increasing sales in the off-road markets offset some of
that decline. Decreases in North American sales volumes were partially offset by
increases of 15% in sales volumes in both the European and Asian markets. 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 through fourth 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
reports of the decline in North American heavy truck production are that overall
truck production volumes in North America in calendar year 2007 declined
approximately 35% over the calendar 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 until 2009 and potentially not to the 2006
levels.

Net sales
increased $7,218 for the year ended September 30, 2006 as compared to the year
ended September 30, 2005, primarily due to increased sales volumes of electronic
throttle control systems, specifically in the North American, Asian and European
markets, and to a lesser extent increase in sales of our pneumatic control
systems. Net sales to our customers in Asia increased approximately 78% over fiscal 2005, whereas net sales in North America and Europe increased 9% and 8%,
respectively.

15

---

|                                       |  |          |  |          |  |          |  | **Percent Change**
|-------------------------------------- |  | -------- |  | -------- |  | -------- |  | ------------------
|                                       |  |          |  |          |  |          |  | **2006 to**       
|For the Year Ended September
      30: |  | **2007** |  | **2006** |  | **2005** |  | **2007**          
|Gross profit                           |  | $ 23,772 |  | $ 26,526 |  | $ 23,013 |  | (10.4)%           

Gross profit was
$23,772, or 34.5%, of net sales for the year ended September 30, 2007, a
decrease of $2,754 from the gross profit of $26,526, or 35.5%, of net sales in
the comparable fiscal 2006 period.

The decrease in
gross profit in fiscal 2007 is primarily driven by a 36% decrease in sales of
electronic throttle and pneumatic control systems to North American heavy truck
customers offset by an increase in sales to transit bus and off-road customers
in North America and higher sales volumes in other foreign markets. During
fiscal 2007, we substantially completed our realignment of operations, as
discussed in Note 1 in the Notes to Consolidated Financial Statements, and as a
result of this realignment we have experienced an overall reduction in labor
costs and material costs due to continued efforts in global sourcing and the
production of our own internally developed contacting and non-contacting
sensors. Offsetting these realignment and sourcing savings, gross profit was
negatively impacted by significantly higher purchase prices for certain raw
materials, an increase in freight costs resulting from our global sourcing
efforts, and an overall increase in overhead expenses primarily due to the costs
associated with our manufacturing facility in Suzhou, China.

Gross profit was
$26,526, or 35.5%, of net sales for the year ended September 30, 2006, an
increase of $3,513 from the gross profit of $23,013, or 34.1%, of net sales in
the comparable fiscal 2005 period.

The increase in
gross profit in fiscal 2006 is primarily driven by a 10.7% increase in sales of
electronic throttle and pneumatic control systems to heavy truck, transit bus
and off-road customers. Gross profits also improved through lower component
sourcing costs for some of our components as we shift suppliers to lower cost,
high quality suppliers primarily in China, a reduction in our warranty liability
of $184 as discussed in Note 2 in the Notes to Consolidated Financial
Statements, and reductions in pension and post-retirement benefit costs of
approximately $252. During the year gross profit was negatively impacted by
significantly higher purchase prices for zinc and aluminum, higher overhead
expenses due to costs associated with our manufacturing facility in Suzhou,
China, which opened during the second quarter of fiscal 2005, and increased
labor costs to support our higher sales volumes.



|                                       |  |          |  |          |  |          |  | **Percent Change**
|-------------------------------------- |  | -------- |  | -------- |  | -------- |  | ------------------
|                                       |  |          |  |          |  |          |  | **2006 to**       
|For the Year Ended September
      30: |  | **2007** |  | **2006** |  | **2005** |  | **2007**          
|Research and development               |  | $ 3,145  |  | $ 3,412  |  | 3,233    |  | (7.8)%            

Research and
development expenses decreased $267 for the year ended September 30, 2007
compared to the same period in fiscal 2006. This decrease in research and
development expense is primarily attributable to the timing of projects in
development and the establishment of our internal conceptual design center,
which has allowed us to reduce our needs for outside services for projects. The
Companys research and development expenditures will fluctuate based on the
programs and products under development at any given point in time.

Research and
development expenses increased $179 for the year ended September 30, 2006
compared to the same period in fiscal 2005. This increase in research and
development expense is primarily attributable to an increase in development
efforts for new products, markets and sensors, resulting in slightly higher
staffing levels and an overall increase in project expenses over the prior
year.

|                                       |  |          |  |          |  |          |  | **Percent Change**
|-------------------------------------- |  | -------- |  | -------- |  | -------- |  | ------------------
|                                       |  |          |  |          |  |          |  | **2006 to**       
|For the Year Ended September
      30: |  | **2007** |  | **2006** |  | **2005** |  | **2007**          
|Selling                                |  | $ 2,163  |  | $ 2,065  |  | $ 1,342  |  | 4.7%              

Selling expenses
increased $98 for the year ended September 30, 2007 as compared to the same
period in fiscal 2006. The increase in selling expenses is the result of our
continued efforts to expand our selling and marketing presence globally,
specifically in Europe and Asia.

16

---

Selling expenses
increased $723 for the year ended September 30, 2006 as compared to the same
period in fiscal 2005. Beginning in the second half of fiscal 2005 and
throughout all of fiscal 2006, we took several steps to expand our sales
efforts, including the addition of sales personnel in the United States, China
and Europe and increased promotional materials. Additionally, we opened our
Europe and China sales offices in mid-fiscal 2005, and accordingly we did not
incur significant costs associated with these offices in fiscal 2005 as compared
to fiscal 2006.

|                                       |  |          |  |          |  |          |  | **Percent Change**
|-------------------------------------- |  | -------- |  | -------- |  | -------- |  | ------------------
|                                       |  |          |  |          |  |          |  | **2006 to**       
|For the Year Ended September
      30: |  | **2007** |  | **2006** |  | **2005** |  | **2007**          
|Administration                         |  | $5,898   |  | $5,640   |  | $5,696   |  | 4.6%              

Administration
expenses for the year ended September 30, 2007 increased $258 as compared to the
same period in fiscal 2006. The increase in administration expenses is primarily
a result of recording an additional $546 of environmental liability at September
30, 2007 as discussed in Note 10 in the Notes to Consolidated Financial
Statements. Administration expenses also increased during fiscal 2007 as the
Company incurred costs to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act. We recorded total costs of approximately $280 in fiscal 2007
related to the evaluation and audit of our internal controls. Legal fees,
including those associated with the class action lawsuit, which is also
discussed in Note 10, decreased approximately 36%. During the years ended
September 30, 2007 and 2006, we recorded stock option compensation expense of
$374 and $305, respectively, in administration expense as a result of SFAS No.
123R as discussed in Note 2 in the Notes to Consolidated Financial
Statements.

Administration
expenses for the year ended September 30, 2006 decreased $56 as compared to the
same period in fiscal 2005. Included in administration expenses in the year
ended September 30, 2005 were one-time compensation and relocation costs
incurred in fiscal 2005 with the commencement of employment of our President and
Chief Executive Officer and management fees, which were reduced as discussed in
Note 12 in the Notes to Consolidated Financial Statements. Additionally, legal
costs decreased 22% from the prior year. Offsetting these reductions was an
increase in information technology expenses to support our international
operations and stock option compensation expense of $305.

|                                       |  |          |  |          |  |          |  | **Percent Change**
|-------------------------------------- |  | -------- |  | -------- |  | -------- |  | ------------------
|                                       |  |          |  |          |  |          |  | **2006 to**       
|For the Year Ended September
      30: |  | **2007** |  | **2006** |  | **2005** |  | **2007**          
|Realignment of operations              |  | $  737   |  | $  582   |  | $     -  |  | *NM*              

The Company
recorded expenses of $737 for the year ended September 30, 2007 related to its
realignment of operations as discussed in Note 1 in the Notes to Consolidated
Financial Statements. The Company recorded expenses of $582 in fiscal year
2006.

|                                       |  |      |       |      |   |       |  | Percent Change
|-------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | --------------
|                                       |  |      |       |      |   |       |  | **2006 to**   
|For the Year Ended September
      30: |  | 2007 |       | 2006 |   | 2005  |  | **2007**      
|Interest income                        |  | $    | (136) |      | $ | (70)  |  | $             
|Interest
      expense                 |  |      | 868   |      |   | 1,414 |  |               
|                                       |  | $    | 732   |      | $ | 1,344 |  | $             

Interest
expense on debt decreased $546 for the year ended September 30, 2007 compared to
the same period in fiscal 2006 due to significant reductions in debt levels.
During fiscal 2007, we paid down $7,540 of long-term debt and at September 30,
2007 our remaining outstanding long-term debt balance is $1,000. We expect
interest expense on debt to decrease significantly in the future as we
anticipate paying down our outstanding debt in fiscal 2008.

Interest
expense on debt decreased $45 for the year ended September 30, 2006 compared to
the same period in fiscal 2005 due to reductions in debt levels, partially
offset by higher overall interest rates.

17

---

|                                       |  |            |  |             |  |             |  | **Percent Change**
|-------------------------------------- |  | ---------- |  | ----------- |  | ----------- |  | ------------------
|                                       |  |            |  |             |  |             |  | **2006 to**       
|For the Year Ended September
      30: |  | **2007**   |  | **2006**    |  | **2005**    |  | **2007**          
|Other income, net                      |  | $  (1,147) |  | $     (765) |  | $     (109) |  | *NM*              

Other income was
$1,147 in fiscal 2007 and consisted primarily of a $769 gain from the
extinguishment of old outstanding accounts payable balances of various insolvent
subsidiaries as discussed in Note 6 in the Notes to Consolidated Financial
Statements and a $120 gain from the extinguishment of old and disputed
outstanding accounts payable balances related to an active subsidiary. Also
included in other income in fiscal 2007 is a $170 gain related to the sales and
disposal of certain property, plant and equipment. Other income was $765 in
fiscal 2006 and consisted primarily of a $712 gain from the extinguishment of
old outstanding accounts payable balances of various insolvent subsidiaries as
discussed in Note 6 in the Notes to Consolidated Financial Statements and a $32
gain from the extinguishment of old and disputed outstanding accounts payable
balances related to an active subsidiary. Other income of $109 in fiscal 2005
consisted primarily of a $60 gain from the extinguishment of old outstanding
accounts payable balances of various insolvent subsidiaries as discussed in Note
6, a $93 gain from the extinguishment of old and disputed outstanding accounts
payable balances related to an active subsidiary, and a $50 loss associated with
the disposal of certain property, plant and equipment.

|                                       |  |             |  |              |  |               |  | **Percent Change**
|-------------------------------------- |  | ----------- |  | ------------ |  | ------------- |  | ------------------
|                                       |  |             |  |              |  |               |  | **2006 to**       
|For the Year Ended September
      30: |  | **2007**    |  | **2006**     |  | **2005**      |  | **2007**          
|Gain on put/call option agreement      |  | $         - |  | $       (10) |  | $       (323) |  | *NM*              

As discussed in
Note 12 in the Notes to Consolidated Financial Statements, the Put/Call option
agreement was terminated during the first quarter of fiscal 2006 and as a result
of this termination a gain of $10 was recognized. The $323 gain for the year
ended September 30, 2005 relates to the change in the net value of the Put/Call
option agreement from September 30, 2005 to September 30, 2006.

|                                       |  |          |  |          |  |          |  | **Percent Change**
|-------------------------------------- |  | -------- |  | -------- |  | -------- |  | ------------------
|                                       |  |          |  |          |  |          |  | **2006 to**       
|For the Year Ended September
      30: |  | **2007** |  | **2006** |  | **2005** |  | **2007**          
|Income tax expense                     |  | $  4,307 |  | $4,709   |  | $  4,279 |  | (8.5)%            

In fiscal 2007,
the Company recorded income tax expense of $4,307 compared to $4,709 in fiscal
2006 and $4,279 in fiscal 2005. The overall tax rate was 35.2% in fiscal 2007
compared to 33.0% and 36.3% in fiscal 2006 and 2005, respectively. The increase
in tax rate from fiscal 2006 to fiscal 2007 is primarily due to an increase in
our state tax rate and the repeal of the extraterritorial income exclusion at
the end of calendar 2006. The fiscal 2005 tax rate included a reduction in
deferred tax assets due to a change in state tax law, resulting in an overall
increase in our tax rate in fiscal 2005.

The Company was
in a net operating loss carry-forward position during fiscal 2005, and by the
first quarter of fiscal 2006 the Company had utilized all of its available
federal net operating loss carry-forwards. Federal net operating losses are
subject to provisions of the Internal Revenue Code, which potentially restrict
the utilization of this type of tax attribute in the event of an "ownership
change" (as defined in the Internal Revenue Code Section 382). Changes in
ownership could significantly defer the utilization of the net operating loss
carry forwards. The Company does not believe that prior recapitalization
transactions coupled with other changes in ownership, created a change in
ownership as defined by the Internal Revenue Code Section 382.

Financial Condition, Liquidity and
Capital Resources

Cash generated
from operations was $8,419 for the year ended September 30, 2007, an increase of
$587 from the cash generated from operations of $7,832 for the year ended
September 30, 2006. Cash flows from operations included net income of $7,937 and
a non-cash deferred tax provision of $638. Cash flows from operations for the
year ended September 30, 2006 included net income of $9,549 and a non-cash
deferred tax provision of $2,157 related to utilization of our remaining net
operating loss as well as certain credits.

18

---

Changes in
working capital items used cash of $1,639 for the year ended September 30, 2007
compared to $5,156 in the corresponding prior year period. Timing of collections
on receivables and sales levels generated cash of $889 in fiscal 2007 compared
with an increase of $1,124 of receivables in the same period of fiscal 2006.
Cash was used to increase inventory levels during fiscal 2006 and 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 feel that inventory levels
reached their maximum levels in mid fiscal 2007 and continue to decline as
supplier switching and the realignment are fully completed. For the year ended
September 30, 2007 changes in inventory generated cash of $766 compared to a use
of cash of $5,485 for the year ended September 30, 2006.Reductions in accounts payable and accrued expenses in fiscal 2007 is
primarily a result of decreases in inventory levels whereas in fiscal 2006 when
inventory levels were significantly increased, accounts payable and accrued
expenses also increased. Cash flows for the years ended September 30, 2007 and
2006 included payments to fund our pensions plans of $1,634 and $1,404,
respectively. We believe we will continue to generate positive cash flow from
continuing operations.

Cash used in
investing activities was $2,048 for the year ended September 30, 2007 and
included $2,230 of purchases of property, plant and equipment offset slightly by
$182 of proceeds from the sales of certain property, plant and equipment. Cash
used in investing activities was $2,281 for the year ended September 30, 2006
and was comprised solely of purchases of property, plant and equipment. We
expect our cash use for investing activities to at least remain constant and
potentially increase in the future as we continue to purchase capital equipment
to expand and support our operations worldwide. We currently anticipate spending
approximately $2,500 in capital expenditures for the year ended September 30,
2008.

Cash used in
financing activities was $7,280 for the year ended September 30, 2007, compared
to cash used in financing activities of $8,073 for the year ended September 30,
2006. The use of cash for financing activities for fiscal 2007 primarily relates
to the payment of $1,149 related to the fiscal 2006 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 payments of $3,917.
Additionally, we received cash proceeds of $260 from the exercise of stock
options. The use of cash for financing activities for fiscal 2006 primarily
relates to the repurchase of common stock from AIP of $3,200, scheduled debt
payments on our Merrill Lynch term loan and payment of $2,074 related to the
fiscal 2005 excess cash flow requirement of our loan agreement with Merrill
Lynch. Additionally, we received cash proceeds of $216 from the exercise of
stock options.

Contractual Obligations as of
September 30, 2007

At September 30,
2007, our contractual obligations consisted of bank debt, operating lease
obligations, a services agreement and a license agreement. We do not have any
material letters of credit, purchase commitments, or debt guarantees outstanding
at September 30, 2007. Maturities of these contractual obligations consist of
the following:

|                                    |  | **Payments due by
      period**
|----------------------------------- |  | --------------------------------
|                                    |  |                                 
|                                    |  | Total                           
|Term loan                           |  | $                               
|Revolver                            |  |                                 
|Operating
      leases              |  |                                 
|MMT license - minimumroyalties      |  |                                 
|Management
      Services Agreement |  |                                 
|                                    |  | $                               

Certain
liabilities, including those related to our pension and post-retirement benefit
plans, are reported in the accompanying consolidated balance sheets but are not
reflected in the table above due to the absence of stated maturities. We have
net obligations at September 30, 2007 related to our pension plans and
post-retirement medical plan of $1,103 and $3,988, respectively. We funded
$1,634 to our pension plans in fiscal 2007 and we expect to make payments of
$1,344 in fiscal 2008 to fund our pension plans.

19

---

At September 30,
2007, we had $8,000 available under our revolving credit facility plus cash and
cash equivalents at September 30, 2007 of $1,621. 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 as well as our capital
expenditure needs.

Included in the
accompanying consolidated balance sheet is approximately $155 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. 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 years ended September 30, 2007, 2006 and 2005, the Company was
judicially released from and reversed $889, $744 and $153, respectively, of old
accounts payable resulting in a gain, which has been recorded in other (income)
expense in the accompanying consolidated statements of operations. 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 $90 in
fiscal 2010; and $65 in fiscal 2011  2016.

Critical Accounting Policies and
Estimates

Management's
discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these 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 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. We expense legal expenses related to
claims in the period incurred. 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.

20

---

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. 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 discounted 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 was then
determined. Our assumed rate does not differ significantly from this benchmark
rate. We assumed a discount rate of 6.25% to determine our pension benefit
obligations at September 30, 2007 and a rate of 5.85% to determine our net
periodic benefit cost in fiscal 2007. A 1.0% decrease in these discount rates
would have increased our pension benefit obligations at the end of fiscal 2007
by $1,479 and increased our net periodic benefit cost in 2007 by $130. A 1.0%
increase in discount rates would have decreased our pension obligations at
September 30, 2007 by $1,230 and decreased our net periodic benefit cost in 2007
by $130. To determine the discount rate for our post-retirement benefit plan, we
also discounted the expected benefit payments using the Citigroup Pension
Discount Liability Index yield curve. A 1.0% decrease in discount rate for our
post-retirement benefit plan would have increased our post-retirement benefit
obligation at September 30, 2007 by $427 and increased our post-retirement
benefit expense in 2007 by $11. A 1.0% increase in discount rate would have
decreased our post-retirement benefit obligation at September 30, 2007 by $359
and decreased our post-retirement benefit expense in 2007 by $11.

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.
Information regarding our asset allocations is included in Note 8 of the Notes
to Consolidated Financial Statements. A 1.0% increase or decrease in the assumed
rate of return on plan assets would have impacted net periodic benefit cost in
fiscal 2007 by $99. Our post-retirement plan does not contain any plan
assets.

We assumed
healthcare cost trend rates for our post-retirement plan of 5.0% - 9.0% in 2007,
decreasing gradually to 5.0% in 2014 and remaining at 5.0% thereafter. A 1.0%
increase in assumed healthcare cost trend rates would have increased our
post-retirement benefit obligation at September 30, 2007 by $367 and increased
post-retirement benefit expense in 2007 by $21. A 1.0% decrease in assumed
healthcare cost trend rates would have decreased the post-retirement benefit
obligation by $314 at the end of fiscal 2007 and decreased post-retirement
benefit expense in 2007 by $18.

21

---

Stock-Based Compensation
Expense

As of October 1,
2005, 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 $512 of stock-based compensation expense for the year ended September
30, 2007. Stock-based compensation expense recorded during the year ended
September 30, 2007 in our consolidated statement of operations included $49 in
cost of sales, $30 in research and development, $59 in selling and the remaining
$374 in administration expense. We recorded $431 of stock-based compensation
expense for the year ended September 30, 2006. Stock-based compensation expense
recorded during the year ended September 30, 2006 in our consolidated statement
of operations included $50 in cost of sales, $27 in research and development,
$49 in selling and the remaining $305 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 is impacted by
changes in the valuation allowance. This process is complex and involves
significant management judgment in determining our provision for income taxes,
deferred tax assets and liabilities and any valuation allowances recorded
against our net deferred tax assets.

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. 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
November 2007, the FASB approved the deferral of the effective date of SFAS No.
157 for one year for all nonfinancial assets and nonfinancial liabilities,
except for those items that are recognized or disclosed at fair value in the
financial statements on a recurring basis.

In September
2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108, Quantifying
FinancialMisstatements, 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 adoption of this
statement did not have a material effect on our financial position, results of
operations or cash flows.

22

---

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 in the first quarter of fiscal 2008. The Company is currently
evaluating the impact of adopting FIN 48 on its financial statements.

ITEM 7A. 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 agreement are variable and are based on the
election of the Company of either a LIBOR rate or Prime rate.

As of September
30, 2007, the outstanding balance on the term loan was $1,000 and there was no
balance outstanding on the revolving loan. The average effective annual interest
rate on the term loan was 11.0% as of September 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 fiscal years ended September 30, 2007 and 2006, the Company
had foreign sales of approximately 41% and 36% of net sales, respectively. All
worldwide sales in fiscal 2007 and 2006, with the exception of $890 and $255,
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 (Munich), Germany. We purchase
components internationally for use in both our products whose sales are
denominated in U.S. dollars and other currencies. Although the Company is
expanding its international exposure, it does not believe that changes in future
exchange rates would have a material effect on its financial position, results
of operations, or cash flows at this time. As a result, the Company has not
entered into forward exchange or option contracts for transactions to hedge
against foreign currency risk. The Company will continue to assess its foreign
currency risk as its international operations, international purchases and sales
increase.

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.

23

---

ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

Williams Controls, Inc.Index to Consolidated Financial
Statements

|                                                                                                                      | Page 
|--------------------------------------------------------------------------------------------------------------------- | -----
|Reports of Independent Registered Public Accounting Firms                                                             | 25-26
|Consolidated
      Balance Sheets at September 30, 2007 and 2006                                                      | 27   
|Consolidated Statements of Stockholders Equity (Deficit) for the
      years ended September 30, 2007, 2006 and 2005 | 28   
|Consolidated
      Statements of Operations for the years ended September 30, 2007, 2006 and
      2005               | 29   
|Consolidated Statements of Comprehensive Income for the years ended
      September 30, 2007, 2006 and 2005           | 30   
|Consolidated
      Statements of Cash Flows for the years ended September 30, 2007, 2006 and
      2005               | 31   
|Notes to Consolidated Financial Statements                                                                            | 32   
|                                                                                                                      |      
|See pages 59-60 for Index to
Exhibits                                                                                

24

---

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
ofWilliams Controls, Inc.:

We have audited
the accompanying consolidated balance sheet of Williams Controls, Inc. and
subsidiaries as of September 30, 2007, and the related consolidated statements
of operations, stockholders equity, comprehensive income, and cash flows for the year then ended. We
also have audited Williams Controls, Inc. and subsidiaries internal control
over financial reporting as of September 30, 2007, based on criteria established
in Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organization of the Treadway Commission (COSO). The Companys management is
responsible for these statements, for maintaining effective control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Managements
Annual Report on Internal Control over Financial Reporting located in Item 9A.
Our responsibility is to express an opinion on these consolidated financial
statements and an opinion on the Companys internal control over financial
reporting based on our audit.

We conducted our
audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our
audit of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provide a reasonable basis for our opinions.

A Companys
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A Companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with the authorizations of management and
directors of the Company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the Companys assets that could have a material effect on the financial
statements.

Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies and procedures may deteriorate.

In our opinion,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Williams Controls, Inc. and
subsidiaries as of September 30, 2007, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, Williams Controls, Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of
September 30, 2007, based on criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.

/s/ Moss Adams LLPPortland, OregonDecember 14, 2007

25

---

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The Board of DirectorsWilliams
Controls, Inc.:

We have audited
the accompanying consolidated balance sheet of Williams Controls, Inc. and
subsidiaries as of September 30, 2006, and the related consolidated statements
of operations, stockholders equity (deficit), comprehensive income, and cash
flows for each of the years in the two-year period ended September 30, 2006.
These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Williams Controls, Inc. and
subsidiaries as of September 30, 2006, and the results of their operations and
their cash flows for each of the years in the two-year period ended September
30, 2006 in conformity with U.S. generally accepted accounting
principles.

/s/ KPMG LLPPortland,
OregonDecember 12, 2006, except as to Note
13, which is as of December 14, 2007

26

---

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

|                                                                  |  | **September
      30,** |         | **September
      30,**
|----------------------------------------------------------------- |  | ----------------------- | ------- | -----------------------
|**ASSETS**                                                        |  | **2007**                |         | **2006**               
|Current Assets:                                                   |  |                         |         |                        
|Cash and cash equivalents                                         |  | $                       | 1,621   |                        
|Trade accounts receivable, less allowance of $33
      and $35 in |  |                         |         |                        
|2007 and 2006, respectively                                       |  |                         | 8,054   |                        
|Other accounts receivable                                         |  |                         | 1,656   |                        
|Inventories                                                       |  |                         | 9,152   |                        
|Deferred income taxes                                             |  |                         | 486     |                        
|Prepaid expenses and other current assets                         |  |                         | 297     |                        
|Total current assets                                              |  |                         | 21,266  |                        
|                                                                 
|Property, plant and equipment, net                                |  |                         | 8,953   |                        
|Deferred income
      taxes                                       |  |                         | 1,461   |                        
|Other assets, net                                                 |  |                         | 623     |                        
|Total assets                                                      |  | $                       | 32,303  |                        
|                                                                 
|**LIABILITIES AND STOCKHOLDERS
      EQUITY**                    |  |                         |         |                        
|Current
      Liabilities:                                        |  |                         |         |                        
|Accounts payable                                                  |  | $                       | 3,811   |                        
|Accrued expenses                                                  |  |                         | 4,983   |                        
|Current portion of employee benefit
      obligations             |  |                         | 288     |                        
|Current portion of long-term debt                                 |  |                         | 1,000   |                        
|Total current liabilities                                         |  |                         | 10,082  |                        
|                                                                 
|Long-term Liabilities:                                            |  |                         |         |                        
|Long-term debt                                                    |  |                         | -       |                        
|Employee benefit obligations                                      |  |                         | 4,803   |                        
|Other long-term liabilities                                       |  |                         | 249     |                        
|                                                                 
|Commitments and contingencies                                     |  |                         |         |                        
|                                                                 
|Stockholders Equity:                                             |  |                         |         |                        
|Preferred stock ($.01 par value, 50,000,000 authorized)           |  |                         |         |                        
|Series C (0 issued and outstanding at September
      30,         |  |                         |         |                        
|2007 and 2006, respectively)                                      |  |                         | -       |                        
|Common stock ($.01 par value, 12,500,000
      authorized;        |  |                         |         |                        
|7,495,482 and 7,432,844 issued and outstanding
      at           |  |                         |         |                        
|September 30, 2007 and 2006, respectively)                        |  |                         | 75      |                        
|Additional paid-in capital                                        |  |                         | 34,899  |                        
|Accumulated deficit                                               |  |                         | (12,477 | )                      
|Treasury stock (21,700 shares at September 30, 2007
      and     |  |                         |         |                        
|2006)                                                             |  |                         | (377    | )                      
|Accumulated other comprehensive loss                              |  |                         | (4,951  | )                      
|Total stockholders equity                                        |  |                         | 17,169  |                        
|Total liabilities and stockholders equity                        |  | $                       | 32,303  |                        

See accompanying notes to Consolidated
Financial Statements.

27

---

Williams Controls, Inc.Consolidated Statements of
Stockholders Equity (Deficit) (Dollars in thousands)

|                                    |  |                    |   |             |   |                 |   |              |                |           |   |        |   |           |   |  |                   |      |                   |  | Other |        |  
|----------------------------------- |  | ------------------ | - | ----------- | - | --------------- | - | ------------ | -------------- | --------- | - | ------ | - | --------- | - |  | ----------------- | ---- | ----------------- |  | ----- | ------ | -
|                                    |  |                    |   |             |   |                 |   |              | **Additional** |           |   |        |   |           |   |  | **Comprehensive** |      | **Stockholders**
|                                    |  | Common
      Stock |   | **Paid-in** |   | **Accumulated** |   | **Treasury** |                | Income    |   | Equity
|                                    |  | **Shares**         |   | **Amount**  |   | **Capital**     |   | **Deficit**  |                | **Stock** |   | (Loss) |   | (Deficit)
|Balance, September 30, 2004         |  | 7,771,569          |   |             | $ | 78              |   |              | $              | 36,348    |   |        | $ | (37,458   | ) |  | $                 | (377 | )                 |  | $     | (5,626 | )
|Net
      income                    |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | 7,495     |   |  |                   | -    |                   |  |       | -      |  
|Exercise of stock options           |  | 3,833              |   |             |   | -               |   |              |                | 17        |   |        |   | -         |   |  |                   | -    |                   |  |       | -      |  
|Common stock
      issuance         |  | 14,860             |   |             |   | -               |   |              |                | 117       |   |        |   | -         |   |  |                   | -    |                   |  |       | -      |  
|Foreign currency translation        |  |                    |   |             |   |                 |   |              |                |           |   |        |   |           |   |  |                   |      |                   |  |       |        |  
|adjustment                          |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | -         |   |  |                   | -    |                   |  |       | 2      |  
|Change in
      pension liability   |  |                    |   |             |   |                 |   |              |                |           |   |        |   |           |   |  |                   |      |                   |  |       |        |  
|adjustment                          |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | -         |   |  |                   | -    |                   |  |       | (15    | )
|Balance, September 30, 2005         |  | 7,790,262          |   |             |   | 78              |   |              |                | 36,482    |   |        |   | (29,963   | ) |  |                   | (377 | )                 |  |       | (5,639 | )
|Net
      income                    |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | 9,549     |   |  |                   | -    |                   |  |       | -      |  
|Exercise of stock options           |  | 51,331             |   |             |   | -               |   |              |                | 216       |   |        |   | -         |   |  |                   | -    |                   |  |       | -      |  
|Common stock
      issuance         |  | 7,917              |   |             |   | -               |   |              |                | 81        |   |        |   | -         |   |  |                   | -    |                   |  |       | -      |  
|Repurchase of common stock          |  | (416,666           | ) |             |   | (4              | ) |              |                | (3,196    | ) |        |   | -         |   |  |                   | -    |                   |  |       | -      |  
|Stock-based
      compensation      |  | -                  |   |             |   | -               |   |              |                | 431       |   |        |   | -         |   |  |                   | -    |                   |  |       | -      |  
|Foreign currency translation        |  |                    |   |             |   |                 |   |              |                |           |   |        |   |           |   |  |                   |      |                   |  |       |        |  
|adjustment                          |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | -         |   |  |                   | -    |                   |  |       | 13     |  
|Change in
      pension liability   |  |                    |   |             |   |                 |   |              |                |           |   |        |   |           |   |  |                   |      |                   |  |       |        |  
|adjustment                          |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | -         |   |  |                   | -    |                   |  |       | 591    |  
|Balance, September 30, 2006         |  | 7,432,844          |   |             |   | 74              |   |              |                | 34,014    |   |        |   | (20,414   | ) |  |                   | (377 | )                 |  |       | (5,035 | )
|Net
      income                    |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | 7,937     |   |  |                   | -    |                   |  |       | -      |  
|Exercise of stock options           |  | 54,778             |   |             |   | 1               |   |              |                | 259       |   |        |   | -         |   |  |                   | -    |                   |  |       | -      |  
|Common stock
      issuance         |  | 7,860              |   |             |   | -               |   |              |                | 114       |   |        |   | -         |   |  |                   | -    |                   |  |       | -      |  
|Stock-based compensation            |  | -                  |   |             |   | -               |   |              |                | 512       |   |        |   | -         |   |  |                   | -    |                   |  |       | -      |  
|Foreign currency
      translation  |  |                    |   |             |   |                 |   |              |                |           |   |        |   |           |   |  |                   |      |                   |  |       |        |  
|adjustment                          |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | -         |   |  |                   | -    |                   |  |       | 54     |  
|Adjustment
      to initially apply |  |                    |   |             |   |                 |   |              |                |           |   |        |   |           |   |  |                   |      |                   |  |       |        |  
|SFAS No.
      158, net of tax      |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | -         |   |  |                   | -    |                   |  |       | (749   | )
|Change in pension liability         |  |                    |   |             |   |                 |   |              |                |           |   |        |   |           |   |  |                   |      |                   |  |       |        |  
|adjustment                          |  | -                  |   |             |   | -               |   |              |                | -         |   |        |   | -         |   |  |                   | -    |                   |  |       | 779    |  
|Balance, September 30, 2007         |  | 7,495,482          |   |             | $ | 75              |   |              | $              | 34,899    |   |        | $ | (12,477   | ) |  | $                 | (377 | )                 |  | $     | (4,951 | )

See accompanying notes to Consolidated
Financial Statements.

28

---

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

|                                                                      |  | For the year
      ended September 30,
|--------------------------------------------------------------------- |  | --------------------------------------
|                                                                      |  | 2007                                  
|Net sales                                                             |  | $                                     
|Cost of
      sales                                                   |  |                                       
|                                                                     
|Gross profit                                                          |  |                                       
|                                                                      |  |                                       
|Operating expenses                                                    |  |                                       
|Research and development                                              |  |                                       
|Selling                                                               |  |                                       
|Administration                                                        |  |                                       
|Realignment of operations                                             |  |                                       
|Total
      operating expenses                                        |  |                                       
|Operating income                                                      |  |                                       
|Other (income)
      expenses:                                        |  |                                       
|Interest income                                                       |  |                                       
|Interest expense                                                      |  |                                       
|Gain on put/call option agreement                                     |  |                                       
|Other income, net                                                     |  |                                       
|Total other (income) expenses                                         |  |                                       
|                                                                      |  |                                       
|Income before income taxes                                            |  |                                       
|Income tax
      expense                                              |  |                                       
|                                                                     
|Net income                                                            |  | $                                     
|Net income per
      common share  basic                             |  | $                                     
|Weighted average shares used in per share calculation 
      basic   |  |                                       
|Net income per
      common share  diluted                           |  | $                                     
|Weighted average shares used in per share calculation 
      diluted |  |                                       

See accompanying notes to Consolidated
Financial Statements.

29

---

Williams Controls, Inc.Consolidated Statements of
Comprehensive Income (Dollars in thousands)

|                                                                  |  | **For
      the year ended September 30,**
|----------------------------------------------------------------- |  | ------------------------------------------
|                                                                  |  | **2007**                                  
|Net income                                                        |  | $                                         
|Change in
      pension liability adjustment, net of tax of $455, |  |                                           
|$346 and ($9) in 2007, 2006 and 2005, respectively                |  |                                           
|Foreign currency translation adjustments                          |  |                                           
|                                                                 
|Comprehensive income                                              |  | $                                         

See accompanying notes to Consolidated
Financial Statements.

30

---

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

|                                                                  |  | **For
      the year ended September 30,**
|----------------------------------------------------------------- |  | ------------------------------------------
|                                                                  |  | **2007**                                  
|Cash flows from operating activities:                             |  |                                           
|Net income                                                        |  | $                                         
|Adjustments to reconcile net income to net cash provided by       |  |                                           
|operating activities:                                             |  |                                           
|Depreciation and amortization                                     |  |                                           
|Deferred income taxes                                             |  |                                           
|(Gain) loss from sale and disposal of fixed assets                |  |                                           
|Gain on put/call option agreement                                 |  |                                           
|Stock based compensation                                          |  |                                           
|Gain on settlement of liabilities                                 |  |                                           
|Changes in operating assets and liabilities:                      |  |                                           
|Receivables                                                       |  |                                           
|Inventories                                                       |  |                                           
|Accounts payable and accrued expenses                             |  |                                           
|Other                                                             |  |                                           
|                                                                 
|Net cash provided by operating activities                         |  |                                           
|                                                                 
|Cash flows from investing activities:                             |  |                                           
|Payments for property, plant and equipment                        |  |                                           
|Proceeds from sales of property, plant and
      equipment        |  |                                           
|                                                                 
|Net cash used in investing activities                             |  |                                           
|                                                                 
|Cash flows from financing activities:                             |  |                                           
|Net repayments of debt and capital lease
      obligations        |  |                                           
|Repurchase of common stock                                        |  |                                           
|Net proceeds from exercise of stock options                       |  |                                           
|                                                                 
|Net cash used in financing activities                             |  |                                           
|                                                                 
|Net increase (decrease) in cash and cash equivalents              |  |                                           
|Cash and cash
      equivalents at beginning of year              |  |                                           
|                                                                 
|Cash and cash equivalents at end of year                          |  | $                                         
|                                                                 
|                                                                  |  | **For
      the year ended September 30,**
|                                                                  |  | **2007**                                  
|Supplemental disclosure of cash flow information:                 |  |                                           
|Interest paid                                                     |  | $                                         
|Income taxes paid, net                                            |  |                                           
|                                                                 
|Supplemental disclosure of non-cash investing and
      financing |  |                                           
|activities:                                                       |  |                                           
|Pension liability adjustment                                      |  | $                                         
|License acquired through royalty payment
      obligation         |  |                                           

See accompanying notes to Consolidated
Financial Statements.

31

---

Notes to Consolidated Financial
Statements Years Ended September 30, 2007, 2006 and 2005(Dollars in
thousands, except share and per share amounts)

Note 1. Organization and Basis of
Presentation

Organization:

Williams Controls, Inc., including
its wholly-owned subsidiaries as follows and hereinafter referred to as the
Company, Registrant, 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
(GeoFocus); NESC Williams, Inc. (NESC); Williams Technologies, Inc.
(Technologies); Williams World Trade, Inc. (WWT); Techwood Williams, Inc.
(TWI); Agrotec Williams, Inc. (Agrotec) and our 80% owned subsidiaries
Hardee Williams, Inc. (Hardee) and Waccamaw Wheel Williams, Inc. (Waccamaw).

Basis of Presentation:

The
consolidated financial statements include all of the accounts of Williams
Controls, Inc. and its subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation.

The preparation of consolidated
financial statements in conformity with US generally accepted accounting
principles 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
issuance of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting periods. Management makes these
estimates using the best information available at the time the estimates are
made; however, actual results 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 impairment testing for long-lived assets,
deferred tax assets and contingencies.

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

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 have been restated to
reflect the effect of the one-for-six reverse stock split for all periods
presented. The reverse split was effective March 16, 2006.

Concentration of Risk and Sales by
Customer:

For the years ended September 30,
2007, 2006 and 2005, The Volvo Group accounted for 17%, 16% and 18%, Paccar,
Inc. accounted for 14%, 17% and 17%, Freightliner, LLC accounted for 13%, 17%
and 18%, Navistar International Corporation accounted for 6%, 8% and 7% of net
sales, respectively. Approximately 41%, 36% and 35% of net sales in fiscal 2007,
2006 and 2005, respectively, were to customers outside of the United States,
primarily in Canada, Belgium, Sweden, Mexico and Korea, and, to a lesser extent,
in other European countries, South America, Pacific Rim nations and Australia.
At September 30, 2007 and 2006, The Volvo Group represented 25% and 25%,
Freightliner, LLC represented 6% and 13%, and Navistar International Corporation
represented 6% and 11%, of trade accounts receivable, respectively.

32

---

Realignment of operations:

During the second quarter of fiscal
year 2006, the Company initiated a plan for realignment (the plan) of its
Portland, Oregon manufacturing operations as part of ongoing efforts to focus on
its core product competencies and improve its global competitiveness. The plan
was essentially completed in fiscal 2007. The plan consisted 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 eliminated 50 hourly and
2 salaried positions from its Portland, Oregon facility during fiscal 2007. As
part of the plan, the Company incurred a one-time termination benefit in
relation to those employees affected by the plan.

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 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 total costs of the plan were
approximately $1.5 million and include costs related to hourly and salaried
termination benefits of $605; 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 classified in financial statement line items other than realignment of
operations expense. The Company recorded realignment expenses of $737 and $582,
respectively, for the twelve month periods ended September 30, 2007 and 2006,
which were recorded in operating expenses in the accompanying 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.

Year ended
      September 30,
    
    2007
    
    2006Balance at beginning of period
    
    $
    226
    
    
    $
    -Payments
    
    
    (519
    )
    
    
    -Additional accruals
    
    
    379
    
    
    
    226Balance at end of
      period
    
    $
    86
    
    
    $
    226


The liability of $86 at September
30, 2007, represents the remaining employee termination benefits that have been
earned but have yet to be paid out.

Note 2. Significant Accounting Policies

Cash and Cash Equivalents:

Cash and cash equivalents include
highly liquid investments with maturities of three months or less at the date of
acquisition.

Trade Accounts Receivable:

The Company provides an allowance
for doubtful accounts equal to the estimated uncollectible amounts. The
Companys estimate is based on historical collection experience and a review of
the current status of trade accounts receivable. It is reasonably possible that
the Companys estimate of the allowance for doubtful accounts will change. Trade
accounts receivable are presented net of an allowance for doubtful accounts of
$33 and $35 at September 30, 2007, and September 30, 2006, respectively.

33

---

Inventories:

Inventories are valued at the lower
of cost or market. Cost is determined using standard costs, which approximate
the first in, first out, or FIFO method. Cost includes the acquisition of
purchased components, parts and subassemblies, labor and overhead. Market with
respect to raw materials is replacement cost and, with respect to
work-in-process and finished goods, is net realizable value.

Property, Plant and Equipment:

Property, plant and equipment are
stated at cost. Property, plant and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets. The
principal estimated lives are: 31.5 years for buildings, 5 to 12 years for
machinery and equipment, and 3 to 5 years for office furniture and equipment.
Capitalized leases are amortized using the straight-line method over the lesser
of the estimated useful lives of the assets or the estimated remaining terms of
the leases. Maintenance and repairs are expensed as incurred.

Impairment of Long-Lived Assets:

In accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for theImpairment or Disposal of Long-Lived Assets,
management reviews long-lived assets for impairment whenever events or changes
in circumstances indicate the carrying amount of such assets may not be
recoverable. Recoverability of these assets is determined by comparing the
estimated undiscounted future cash flows of the operation to which the assets
relate, to the carrying value of such assets. If the carrying value of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying value of the asset exceeds the fair value of
the asset. Assets to be disposed of are reported at the lower of the carrying
value or fair value less costs to sell.

Debt Issuance Costs:

Costs incurred in the issuance of
debt financing are amortized over the term of the debt agreement, approximating
the effective interest method, and are included in other assets on the
accompanying consolidated balance sheets.

Deferred Income Taxes:

Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the consolidated financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the consolidated statement of operations in
the period that includes the enactment date. Valuation allowances are
established as necessary to reduce deferred tax assets unless realization of the
assets is considered more likely than not.

Product Warranty:

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 on the
accompanying 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 years
ended September 30, 2007, 2006 and 2005.

34

---

Balance at September 30, 2004
    
    $
    1,393Payments
    
    
    (1,070
    )Warranty claims accrued
    
    
    1,333Balance at September 30, 2005
    
    $
    1,656Payments
    
    
    (864
    )Warranty claims accrued
    
    
    1,112Adjustments and changes in estimates
    
    
    (184
    )Balance at September 30, 2006
    
    $
    1,720Payments
    
    
    (1,076
    )Warranty claims accrued
    
    
    1,228Adjustments and changes in estimates
    
    
    (160
    )Balance at September 30, 2007
    
    $
    1,712


Included in
the warranty liability at September 30, 2006 were 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.
At September 30, 2007, the Company reversed this $400 warranty liability as the
warranty return period has expired.

During
fiscal 2007, the Company recorded an additional warranty liability of $307
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 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.

Environmental Costs:

Liabilities for environmental
matters are recorded when it is probable that a liability has been incurred and
the amount of the liability can be reasonably estimated, or if an amount is
likely to fall within a range and no amount within that range can be determined
to be the better estimate, the minimum amount of the range is recorded.
Liabilities for environmental matters exclude claims for recoveries from prior
owners or operators until it is probable that such recoveries will be
realized.

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.

Research and Development Costs:

Research and development costs are
expensed as incurred. Research and development costs consist primarily of
employee costs, cost of consumed materials, depreciation and engineering related
costs.

35

---

Pensions and Post-retirement Benefit
Obligations:

The Company accounts for pensions
and post-retirement benefits in accordance with SFAS No. 87, Employers
Accounting for Pensions, SFAS No. 106, Employers Accounting for Post
Retirement Benefits Other than Pensions, and SFAS No. 132R, Employers
Disclosures about Pensions and Other Post Retirement Benefits  An Amendment of
FASB Statements No. 87, 88, and 106 and SFAS No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans  an Amendment of
FASB Statements No. 87, 88, 106 and 132R. SFAS No. 87 requires the Company to
calculate its pension expense and liabilities using actuarial assumptions,
including a discount rate assumption and a long-term rate of return on assets
assumption. Changes in interest rates and market performance can have a
significant impact on the Companys pension expense and future payments. SFAS
No. 106 requires theCompany to accrue the cost
of post-retirement benefit obligations. The accruals are based on interest rates
and the costs of health care. Changes in interest rates and health care costs
could impact post-retirement expenses and future payments.

Earnings (loss) Per
Share:

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

Following is a reconciliation of
basic EPS and diluted EPS:

|                                      |  | **Year
      Ended**   |       | **Year
      Ended**      
|------------------------------------- |  | ---------------------- | ----- | --------------------------
|                                      |  | **September 30, 2007** |       | **September 30,
    2006**
|                                      |  |                        |       |                           
|                                      |  | **Income**             |       | **Shares**                
|Basic
      EPS                      |  | $                      | 7,937 |                           
|Effect of dilutive
      securities  |  |                        |       |                           
|Stock
      options                   |  |                        | -     |                           
|                                     
|Diluted EPS                          |  | $                      | 7,937 |                           
|                                     
|                                      |  | **Year
      Ended**   |       |                           
|                                      |  | **September 30, 2005** |       |                           
|                                      |  |                        |       |                           
|                                      |  | **Income**             |       | **Shares**                
|Basic
      EPS                      |  | $                      | 7,495 |                           
|Effect of dilutive
      securities  |  |                        |       |                           
|Stock
      options                   |  |                        | -     |                           
|                                     
|Diluted EPS                          |  | $                      | 7,495 |                           

At September 30, 2007, 2006 and
2005, the Company had options covering 100,912, 52,589 and 62,875 shares,
respectively, that were not considered in the diluted EPS calculation since they
would have been antidilutive.

Stock-Based Compensation:

In the first
quarter of fiscal 2006, the Company adopted 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.

36

---

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 beginning 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
authorized 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. 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. At September 30, 2007 and 2006, the Company had 55,471 and 138,449
shares, respectively, available for future grants under the 1993 Plan. The
non-employee Director Plan (the 1995 Plan) reserves an aggregate of 66,666
shares of the Companys authorized 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. At September 30,
2007 and 2006 there were 16,684 and 25,014 shares, respectively, available for
grant under the 1995 Plan.

As of
September 30, 2007, there was $1,991 of total unrecognized compensation costs
related to nonvested stock options. That cost is expected to be recognized over
a weighted average period of 3.5 years.

For the year
ended September 30, 2007, the Companys total stock-based compensation expense
was $512 ($429 net of tax). For the year ended September 30, 2007, stock-based
compensation expense was recorded in cost of sales and operating expenses in the
amounts of $49 and $463, respectively, in the accompanying consolidated
statement of operations.

For the year
ended September 30, 2006, the Companys total stock-based compensation expense
was $431 ($381 net of tax). For the year ended September 30, 2007, stock-based
compensation expense was recorded in cost of sales and operating expenses in the
amounts of $50 and $381, respectively, in the accompanying consolidated
statement of operations.

37

---

The
following table illustrates the effect on net income and earnings per share for
the year ended September 30, 2005 as if the Companys stock-based compensation
had been determined based on the fair value at the grant dates for awards made
prior to fiscal 2006.

**Year
      Ended****September
      30,****2005**Net
      income, as reported
    
    $
    7,495Add: Stock-based employee
      compensationexpense included in
      reported net income, net of tax
    
    
    74Deduct: Total stock-based employeecompensation expense determined under fair valuebased
      method, net of tax
    
    
    (405
    )Pro forma net
      income
    
    $
    7,164Earnings per share:Basic 
      as reported
    
    $
    0.96Basic  pro forma
    
    $
    0.92Diluted
       as reported
    
    $
    0.94Diluted  pro forma
    
    $
    0.90


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 years ended September 30, 2007,
2006 and 2005.

**2007**
    
    **2006**
    
    **2005**Risk-free interest rate
    
    4.46%
    
    4.57%
    
    3.86%Expected dividend
      yield
    
    0%
    
    0%
    
    0%Expected term
    
    6.4 years
    
    6.3 years
    
    6.5 yearsExpected volatility
    
    80%
    
    88%
    
    87%


Using the
Black-Scholes methodology, the total value of options granted during the years
ended September 30, 2007, 2006 and 2005, was $1,526, $488 and $748,
respectively, which would be amortized over the vesting period of the options.
The weighted average grant date fair value of stock options granted during the
years ended September 30, 2007, 2006 and 2005 was $12.40, $8.22 and $4.38 per
share, respectively.

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 September 30, 2007.

**Weighted
      Average****Shares**
    
    **Exercise Price**Outstanding at September 30, 2006
    
    586,255
    
    
    $
    5.85Granted
    
    123,064
    
    
    
    17.13Exercised
    
    (54,778
    )
    
    
    4.75Forfeited
    
    (31,756
    )
    
    
    7.87Outstanding at September 30, 2007
    
    622,785
    
    
    $
    8.40Exercisable at September
      30, 2007
    
    316,655
    
    
    $
    6.01


At September
30, 2007, the weighted average remaining contractual term of options outstanding
and options exercisable was 6.9 years and 5.8 years, respectively.

38

---

The
aggregate intrinsic value of options outstanding and options exercisable at
September 30, 2007 was $5,995 and $3,804, 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 intrinsic value of all stock
options exercised during the years ended September 30, 2007, 2006 and 2005 was
$640, $423 and $10, respectively. Cash received from the exercise of stock
options for the years ended September 30, 2007, 2006 and 2005 was $260, $216 and
$17, respectively.

Stock option activity during the
periods indicated under the 1993 Plan is as follows:

**Shares Available**
    
    **Shares Subject****For
      Grant**
    
    **To
      Options**
    
    **Option
      Prices**Outstanding at September 30, 2004
    
    287,347
    
    
    450,868
    
    
    $
    3.96  21.78Granted
    
    (166,666
    )
    
    166,666
    
    
    
    6.00Exercised
    
    -
    
    
    (3,832
    )
    
    
    3.96  4.62Forfeited
    
    21,416
    
    
    (21,416
    )
    
    
    3.96  21.78Outstanding at September 30, 2005
    
    142,097
    
    
    592,286
    
    
    
    3.96  17.25Granted
    
    (45,992
    )
    
    45,992
    
    
    
    8.22 
      14.04Exercised
    
    -
    
    
    (50,498
    )
    
    
    3.96  4.68Forfeited
    
    42,344
    
    
    (42,344
    )
    
    
    3.96  16.01Outstanding at September 30, 2006
    
    138,449
    
    
    545,436
    
    
    
    3.96  17.25Granted
    
    (113,068
    )
    
    113,068
    
    
    
    14.03 
      18.05Exercised
    
    -
    
    
    (54,778
    )
    
    
    3.96  15.00Forfeited
    
    30,090
    
    
    (30,090
    )
    
    
    3.96  15.00Outstanding at September 30, 2007
    
    55,471
    
    
    573,636
    
    
    $
    3.96  18.05


Stock option activity during the
periods indicated under the 1995 Plan is as follows:

**Shares Available**
    
    **Shares Subject****For
      Grant**
    
    **To
      Options**
    
    **Option Prices**Outstanding at September 30, 2004
    
    40,008
    
    
    26,658
    
    
    $
    3.96  18.00Granted
    
    (4,998
    )
    
    4,998
    
    
    
    7.20Forfeited
    
    1,666
    
    
    (1,666
    )
    
    
    18.00Outstanding at September 30, 2005
    
    36,676
    
    
    29,990
    
    
    
    3.96  16.13Granted
    
    (13,328
    )
    
    13,328
    
    
    
    7.20  12.24Exercised
    
    -
    
    
    (833
    )
    
    
    7.20Forfeited
    
    1,666
    
    
    (1,666
    )
    
    
    15.94Outstanding at September 30, 2006
    
    25,014
    
    
    40,819
    
    
    
    3.96 16.13Granted
    
    (9,996
    )
    
    9,996
    
    
    
    17.69Exercised
    
    -
    
    
    -
    
    
    
    -Forfeited
    
    1,666
    
    
    (1,666
    )
    
    
    15.94Outstanding at September 30, 2007
    
    16,684
    
    
    49,149
    
    
    $
    3.96 17.69


39

---

The following table summarizes
information about stock options under both plans outstanding at September 30,
2007:

|         |                    | Options
      Outstanding |         |              |     | Options
      Exercisable
|-------- | ------------------ | ------------------------- | ------- | ------------ | --- | -------------------------
|         |                    | Number                    |         | Weighted     |     |                          
|         |                    | Outstanding               |         | Average      |     | Weighted                 
|Range of |                    | at                        |         | Remaining    |     | Average                  
|Exercise |                    | September 30,             |         | Contractual  |     | Exercise                 
|Prices   |                    | 2007                      |         | Life  Years |     | Price                    
|$        | 3.96  4.68        |                           | 257,600 |              | 5.9 |                          
|         | 7.20 
      13.50 |                           | 224,820 |              | 6.9 |                          
|         | 14.03  18.05      |                           | 140,365 |              | 8.7 |                          
|$        | 3.96  18.05       |                           | 622,785 |              | 6.9 |                          

At September 30, 2006 and 2005,
271,503 and 235,930 options, respectively, were exercisable at weighted average
exercise prices of $5.76 and $5.64 per share, respectively.

Contingencies:

Certain conditions may exist as of
the date the financial statements are issued, which may result in a loss to the
Company but which will only be resolved when one or more future events occur or
fail to occur. The Companys management assess such contingent liabilities, and
such assessment inherently involves an exercise of judgment. In assessing loss
contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Companys
management and legal counsel evaluate the perceived merits of any legal
proceedings or unasserted claims as well as the perceived merits of the amount
of relief sought or expected to be sought therein. If the assessment of a
contingency indicates that it is probable that a material loss has been incurred
and the amount of the liability can be estimated, then the estimated liability
would be recorded in the Companys financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is
reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, together with an estimate of the range of possible
loss if determinable and material, would be disclosed.

Fair Value of Financial
Instruments:

The carrying amounts reflected in
the accompanying consolidated balance sheet for cash and cash equivalents,
accounts receivable, other accounts receivable, prepaid expenses and other
current assets, accounts payable (excluding accounts payable related to certain
insolvent subsidiaries as discussed in Note 6), accrued expenses, and short-term
borrowings approximate fair value due to the short-term nature of the
instruments. Refer to Note 7 regarding the terms and conditions of the Companys
long-term debt.

Recent 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. 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 November
2007, the FASB approved the deferral of the effective date of SFAS No. 157 for
one year for all nonfinancial assets and nonfinancial liabilities, except for
those items that are recognized or disclosed at fair value in the financial
statements on a recurring basis.

40

---

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 adoption of this statement did not have a material effect
on the Companys financial position, results of operations or cash
flows.

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 in
the first quarter of fiscal 2008. The Company is currently evaluating the impact
of adopting FIN 48 on its financial statements.

Note 3. Inventories

Inventories consist of the following
at September 30:

2007
    
    2006Raw material
    $
    7,057
    
    $
    7,589Work in
      process
    
    66
    
    
    227Finished goods
    
    2,029
    
    
    2,102$
    9,152
    
    $
    9,918


Note 4. Property, Plant and Equipment

Property, plant and equipment
consist of the following at September 30:

2007
    
    2006Land
      and land improvements
    $
    828
    
    
    $
    828Buildings
    
    3,988
    
    
    
    3,725Machinery and equipment
    
    11,853
    
    
    
    11,190Office furniture and
      equipment
    
    4,143
    
    
    
    3,974Construction in progress
    
    544
    
    
    
    56621,356
    
    
    
    20,283Less
      accumulated depreciation
    
    (12,403
    )
    
    
    (11,826
    )$
    8,953
    
    
    $
    8,457


Depreciation expense for the years
ended September 30, 2007, 2006 and 2005 was $1,793, $1,288 and $877,
respectively.

Note 5. Patent License Agreements

During
fiscal 2003 the Company obtained a license agreement for use in its adjustable
pedal product lines. This initial agreement was for an initial period of three
years and contained provisions to be subsequently renewed annually if certain
sales thresholds were met. The Company met the sales thresholds effective July
2006 and 2007, therefore the agreement is currently extended through July 2008.
The Company is obligated to make royalty payments based on the number of units
it sells. During the years ended September 30, 2007 and 2006, the Company sold
adjustable pedals and recorded an accrual for royalties related to these sales
of $6 and $4, respectively. No adjustable pedals were sold prior to fiscal 2006.
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 years ended September 30, 2007 and
2006, the Company amortized approximately $11 and $3, 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.

41

---

Additionally, as part of the sale of the our passenger car and light
truck product lines to Teleflex Incorporated on September 30, 2003, we obtained
the right to use certain of Teleflexs adjustable pedal patents in exchange for
Teleflex receiving licenses for certain of our 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
twelve months ended September 30, 2007 and 2006, the Company amortized $28 and
$23, respectively, of this initial licensing fee. No units were sold prior to
fiscal 2006. In addition, the Company makes royalty payments based on the number
of units sold, which includes minimum yearly royalties beginning in year three
of this agreement. During the years ended September 30, 2007 and 2006, the
Company recorded royalty payments of $134 and $9, respectively, related to units
sold during those periods. The Company capitalized, as part of the license fee,
$229 which is equal to the present value of the minimum royalty payment
obligation. 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 6. Settlement of Accounts
Payable

Included in the accompanying
consolidated balance sheet is approximately $155 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. 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 years ended
September 30, 2007, 2006 and 2005, the Company was judicially released from and
reversed $889, $744 and $153, respectively, of old accounts payable resulting in
a gain, which has been recorded in other (income) expense in the accompanying
consolidated statements of operations. 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 $90 in fiscal 2010; and $65 in
fiscal 2011  2016.

Note 7. 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 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 a 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 adjusted annually to
repay the remaining loan balance 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
and through September 30, 2007 the Company has made prepayments on the term loan
so that on September 30, 2007 only $1,000 remained outstanding under the term
loan. 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. 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 September 30, 2007 and 2006, the Company was
in compliance with all but two of its financial covenants. The Company has
obtained waivers from Merrill Lynch for fiscal 2007 and 2006 for the two
financial covenants it did not meet.

42

---

During the first quarter of fiscal
2006, the Company repurchased $3,200 of its common stock from one investor as
discussed in Note 12. 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.

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 a 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 September 30, 2007, the remaining unamortized balance is $40.
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 $8,000 available
under its revolving credit facility at both September 30, 2007 and
2006.

The Companys long-term debt
consists of the following at September 30:

2007
    
    2006Revolving credit facility due September 29, 2009, bearing
      interest at avariable rate.
    $
    -
    
    
    $
    -Term
      loan due September 29, 2009, balance bearing interest at avariable rate, (11.0% at September 30, 2007)
    
    1,000
    
    
    
    8,5401,000
    
    
    
    8,540Less
      current portion
    
    (1,000
    )
    
    
    (3,996
    )$
    -
    
    
    $
    4,544


Note 8. Employee Benefit
Plans

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. Annual net periodic pension costs under the pension
plans are determined on an actuarial basis. The Companys policy is to fund
these costs 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.

The Company also provides health
care and life insurance benefits for certain of its retired employees (Post
Retirement Plan). These benefits are subject to deductibles, co-payment
provisions and other limitations. The Company may amend or change the Post
Retirement Plan periodically. In accordance with SFAS No. 106 Employers
Accounting for Post Retirement Benefits other than Pensions, the Company
elected to amortize the accumulated post retirement benefit obligation (APBO)
at October 1, 1993 over twenty years as a component of post retirement benefits
expense.

In 2003, the Company modified the
provisions of the salaried plan to limit the number of eligible employees to
those currently in the plan at the time of the modification and to limit
benefits under the plan to those earned to that date. As part of the 2003
contract and strike settlement agreement with the union hourly workers, the
hourly plan was also modified in 2003 to limit participation in the plan to
those employees in the plan at August 31, 2002.

Adoption of SFAS No. 158

Effective September 30, 2007, the
Company adopted the recognition and disclosure provisions of SFAS No. 158. Under
the recognition provisions of SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of SFAS No. 87,
88, 106, and 132R, the Company is required to recognize the overfunded or
underfunded status of its defined benefit plans as an asset or liability,
respectively, in its consolidated balance sheet at September 30, 2007. For the
Companys pension plans, the funded status is measured as the difference between
the projected benefit obligation and the fair value of plan assets. For the
Companys post retirement plan, the funded status is measured as the difference
between the accumulated postretirement benefit obligation and the fair value of
plan assets. Under the transition provisions of SFAS No. 158, actuarial gains or
losses, and prior service costs or credits that have not yet been included in
net periodic benefit expense as of the adoption date are recognized in
stockholders equity as components of the ending balance of accumulated other
comprehensive income (loss), net of tax. In future periods, the Company will
recognize changes in the funded status that are not components of the
current-period net periodic benefit expense as a component of other
comprehensive income (loss) in the year the change occurs.

43

---

Since retrospective adoption of SFAS
No. 158 is prohibited, different recognition provisions have been applied in
determining the plan-related amounts reported in the Companys consolidated
balance sheets at September 30, 2007 and 2006. Prior to adoption of the
recognition provisions of SFAS No. 158, the Company accounted for its pension
plans and post retirement plan under SFAS No. 87, Employers Accounting for
Pensions, and SFAS No. 106, Employers Accounting for Postretirement Benefits
Other Than Pensions, respectively. SFAS No. 87 required an employer to report
an additional minimum pension liability adjustment to recognize the shortfall
between the fair value of its pension plan assets and the accumulated benefit
obligation (rather than projected benefit obligation, as required by SFAS No.
158). Under SFAS No. 87 and SFAS No. 106, the liability recognized in an
employers consolidated balance sheets was offset by unrecognized actuarial
gains or losses and prior service costs or credits that had not yet been
included in net periodic benefit expense.

Upon adoption of the recognition
provisions of SFAS No. 158, the Company has fully recognized the funded status
of its pension plans and post retirement plan. In addition, adoption of SFAS No.
158 results in accumulated other comprehensive loss representing the net
unrecognized actuarial losses, transition obligation and unrecognized prior
service costs/credits. As a result, the Company recognized the following
adjustments as of September 30, 2007:

Before
    
    
    
    AfterApplication
    
    
    
    Applicationof
      SFAS
    
    
    
    of SFASNo. 158
    
    Adjustments
    
    No. 158Other assets, net
    $
    693
    
    
    $
    (70
    )
    
    $
    623Deferred
      income taxes
    
    2,102
    
    
    
    (155
    )
    
    
    1,947Total assets
    
    32,528
    
    
    
    (225
    )
    
    
    32,303Employee benefit obligations
    
    4,257
    
    
    
    834
    
    
    
    5,091Accumulated other comprehensive loss
    
    (4,202
    )
    
    
    (749
    )
    
    
    (4,951
    )Total stockholders equity
    
    17,918
    
    
    
    (749
    )
    
    
    17,169


In addition, SFAS No. 158 requires
plans assets and obligations to be measured as of the end of the fiscal year
rather than at an earlier measurement date, as allowed under current accounting
standards. The Company currently measures plan assets and obligations as of
August 31. The effective date for the end of the fiscal year measurement date
requirement is the first fiscal year ending after December 15, 2008. The Company
has not yet adopted the measurement provisions and is currently assessing the
effect it will have on its consolidated financial statements.

44

---

Pension Plans

The following table reports the
changes in the projected benefit obligation, the fair value of plan assets, and
the determination of the amounts recognized in the consolidated balance sheets
for the Companys pension plans at September 30:

Salaried Plan
    
    Hourly PlanSeptember 30,
    
    2007
    
    2006
    
    2007
    
    2006Accumulated benefit obligation
    $
    4,894
    
    
    $
    5,184
    
    
    $
    7,613
    
    
    $
    7,883Change in projected benefit obligation:Benefit obligation at beginning of year
    $
    5,184
    
    
    $
    5,401
    
    
    $
    7,883
    
    
    $
    8,048Service cost
    
    -
    
    
    
    -
    
    
    
    118
    
    
    
    144Interest cost
    
    294
    
    
    
    275
    
    
    
    447
    
    
    
    412Actuarial (gain) loss
    
    (267
    )
    
    
    (199
    )
    
    
    (238
    )
    
    
    (286
    )Curtailment
    
    -
    
    
    
    -
    
    
    
    (134
    )
    
    
    -Benefits paid
    
    (317
    )
    
    
    (293
    )
    
    
    (463
    )
    
    
    (435
    )Benefit obligation at end of year
    $
    4,894
    
    
    $
    5,184
    
    
    $
    7,613
    
    
    $
    7,883Change in plan assets:Fair
      value of plan assets at beginning of year
    $
    3,893
    
    
    $
    3,387
    
    
    $
    5,729
    
    
    $
    5,007Actual return on plan assets
    
    370
    
    
    
    224
    
    
    
    558
    
    
    
    328Employer contributions
    
    633
    
    
    
    575
    
    
    
    1,001
    
    
    
    829Benefits paid
    
    (317
    )
    
    
    (293
    )
    
    
    (463
    )
    
    
    (435
    )Fair
      value of plan assets at end of year
    $
    4,579
    
    
    $
    3,893
    
    
    $
    6,825
    
    
    $
    5,729Funded status at end of year
    $
    (315
    )
    
    $
    (1,291
    )
    
    $
    (788
    )
    
    $
    (2,154
    )Unrecognized actuarial loss
    
    N/A
    
    
    
    1,855
    
    
    
    N/A
    
    
    
    2,753Unrecognized prior service cost
    
    N/A
    
    
    
    -
    
    
    
    N/A
    
    
    
    186Net
      amount recognized
    $
    (315
    )
    
    $
    564
    
    
    $
    (788
    )
    
    $
    785


Weighted-average assumptions used to
determine benefit obligations at September 30:

| |                                     | Salaried Plan |   | Hourly Plan
| | ----------------------------------- | ------------- | - | -----------
| |                                     | 2007          |   | 2006       
| | Discount rate                       | 6.25          | % |            
| | Rate of
      compensation increase | -             |   |            

The amounts included in accumulated
other comprehensive loss that have not yet been recognized in net periodic
benefit cost as of September 30, 2007, consist of the following:

| |                          | Salaried |       | Hourly
| | ------------------------ | -------- | ----- | ------
| |                          | Plan     |       | Plan  
| | Actuarial loss           | $        | 1,399 |       
| | Prior service
      cost |          | -     |       
| |                          | $        | 1,399 |       

Amounts in fiscal 2008 that will be
amortized from accumulated other comprehensive loss into net periodic benefit
cost include the following:



| |                          | Salaried |    | Hourly
| | ------------------------ | -------- | -- | ------
| |                          | Plan     |    | Plan  
| | Actuarial loss           | $        | 65 |       
| | Prior service
      cost |          | -  |       
| |                          | $        | 65 |       

45

---

Net periodic benefit cost for the
years ended September 30 include the following:



| |                                    | Salaried Plan |      | Hourly Plan
| | ---------------------------------- | ------------- | ---- | -----------
| | Years ended September
    30:      |               | 2007 |            
| | Service cost                       | $             | -    |            
| | Interest cost                      |               | 294  |            
| | Expected return on plan assets     |               | (272 | )          
| | Amortization of prior service cost |               | -    |            
| | Curtailment                        |               | -    |            
| | Recognized net actuarial loss      |               | 91   |            
| | Net periodic benefit cost          | $             | 113  |            

Weighted-average
assumptions used to determine Net Periodic Benefit Cost for the years ended
September 30:

| |                                      | Salaried Plan |   | Hourly Plan
| | ------------------------------------ | ------------- | - | -----------
| |                                      | 2007          |   | 2006       
| | Discount rate                        | 5.85          | % |            
| | Expected return
      on plan assets | 6.75          | % |            
| | Rate of compensation increase        | -             |   |            

The overall expected long-term rate
of return assumptions for fiscal 2007 were developed using return expectations.
Historical and future expected returns of multiple asset classes were analyzed
to develop a risk-free real rate of return and risk premiums for each asset
class. The overall rate for each asset class was developed by combining a
long-term inflation component, the risk-free real rate of return, and the
associated risk premium. A weighted average rate was developed based on those
overall rates and the target asset allocation of the plan.

***Plan Assets:***

The Companys pension plan
weighted-average asset allocations at September 30, 2007 and 2006, by asset
category are as follows:

| |                         | Salaried Plan |   | Hourly Plan
| | ----------------------- | ------------- | - | -----------
| |                         |               |   |            
| |                         | 2007          |   | 2006       
| | Asset Category:         |               |   |            
| | Equity
      securities | 48            | % |            
| | Debt securities         | 46            | % |            
| | Real
      estate       | 6             | % |            
| | Total                   | 100           | % |            

The Companys investment strategy is
to build an efficient, well-diversified portfolio based on a long-term,
strategic outlook of the investment markets. The investment markets outlook
utilizes both historical-based and forward-looking return forecasts to establish
future return expectations for various asset classes. These return expectations
are used to develop a core asset allocation based on the specific needs of the
plan. The core asset allocation utilizes multiple investment managers in order
to maximize the plans return while minimizing risk.

***Cash Flows:***

The Company expects to recognize
$293 in expense in fiscal 2008 related to its pension plans and make payments of
$1,344 in fiscal 2008.

46

---

Based on current data and
assumptions, the following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid over the next 10 fiscal years:

| |                 | Benefit Payments 
| | --------------- | -----------------
| | Year ending:    | Salaried
    Plan
| | 2008            | $                
| | 2009            |                  
| | 2010            |                  
| | 2011            |                  
| | 2012            |                  
| | Years 2013-2017 |                  

Post Retirement Plan

The following table sets forth the
changes in benefit obligation and the determination of the amounts recognized in
the consolidated balance sheets for the Post Retirement Plan at September
30:

| | September 30,                                        |   | 2007   |   | 2006
| | ---------------------------------------------------- | - | ------ | - | ----
| | Change in benefit obligation:                        |   |        |   |     
| | Benefit obligation at beginning of year              | $ | 3,942  |   |     
| | Service cost                                         |   | 6      |   |     
| | Interest cost                                        |   | 221    |   |     
| | Actuarial loss                                       |   | 84     |   |     
| | Benefits paid                                        |   | (265   | ) |     
| | Benefit obligation at end of year                    | $ | 3,988  |   |     
| |                                                     
| | Change in plan assets:                               |   |        |   |     
| | Fair
      value of plan assets at beginning of year | $ | -      |   |     
| | Employer contributions                               |   | 265    |   |     
| | Benefits paid                                        |   | (265   | ) |     
| | Fair value of plan assets at end of year             | $ | -      |   |     
| |                                                     
| | Funded status at end of year                         | $ | (3,988 | ) |     
| | Unrecognized loss                                    |   | N/A    |   |     
| | Unrecognized prior service cost                      |   | N/A    |   |     
| | Unrecognized transition obligation                   |   | N/A    |   |     
| | Accrued benefit cost recognized                      | $ | (3,988 | ) |     

Weighted-average assumptions used to
determine benefit obligations at September 30:

| |                                     | **2007** |   | **2006**
| | ----------------------------------- | -------- | - | --------
| | Discount rate                       | 6.17     | % |         
| | Rate of
      compensation increase | -        |   |         

The amounts included in accumulated
other comprehensive loss that have not yet been recognized in net periodic
benefit cost as of September 30, 2007, consist of the following:



| | Actuarial loss            | $ | 1,518 |   | 
| | ------------------------- | - | ----- | - | 
| | Prior service credit      |   | (805  | ) | 
| | Transition
    obligation |   | 121   |   | 
| |                           | $ | 834   |   | 

47

---

Amounts in fiscal 2008 that will be
amortized from accumulated other comprehensive loss into net periodic benefit
cost include the following:

| | Actuarial loss             | $ | 75   |  
| | -------------------------- | - | ---- | -
| | Prior service
      credit |   | (130 | )
| | Transition obligation      |   | 20   |  
| |                            | $ | (35  | )

Net periodic post retirement benefit
cost for the years ended September 30 included the following:

| | Year ended
      September 30:                  |   | 2007 |   | 2006 |   | 2005
| | ----------------------------------------------- | - | ---- | - | ---- | - | ----
| | Service cost                                    | $ | 6    |   |      | $ | 7   
| | Interest cost                                   |   | 220  |   |      |   | 199 
| | Amortization                                    |   | (22  | ) |      |   | (29 
| | Net
      periodic post retirement benefit cost | $ | 204  |   |      | $ | 177 
| | Discount rate assumption                        |   | 5.80 | % |      |   | 5.25

Based on current data and
assumptions, the following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid over the next 10 fiscal
years:

| |                     | Benefit 
| | ------------------- | --------
| | Year
      ending:  | Payments
| | 2008                | $       
| | 2009                |         
| | 2010                |         
| | 2011                |         
| | 2012                |         
| | Years
    2013-2017 |         

The assumed health care cost trend
rate used in measuring the benefit obligation ranged between 5.0%-9.0% in the
first year, declining gradually to 5.0% in 2014 and remaining at 5.0%
thereafter.

If the assumed medical costs trends
were increased by 1%, the benefit obligation as of September 30, 2007 would
increase by $367, and the aggregate of the services and interest cost components
of the net post retirement benefit cost would be increased by $21. If the
assumed medical costs trends were decreased by 1%, the benefit obligation as of
September 30, 2007 would decrease by $314, and the aggregate of the services and
interest cost components of the net post retirement benefit cost would be
decreased by $18.

As part of the strike
settlement agreement entered into in August 2003, the Company modified the
provisions of the Post Retirement Plan to limit the number of eligible employees
to those currently in the plan at August 31, 2002. The plan was further modified
so that the benefits for any plan participant who had not retired under the
union pension plan as of September 17, 2003 would be limited to a one-time lump
sum payment under the plan of $6 at the time of a qualified retirement under the
union pension plan.

Other Benefit Plans

The Company sponsors a matching
401(k) plan for salaried employees and certain union employees, in which
eligible employees may elect to contribute a portion of their compensation.
Employer matching contributions in fiscal 2007, 2006 and 2005 were $230, $213
and $203, respectively.

Note 9. Income Tax
Expense

The provision for income tax expense
is as follows for the years ended September 30:

| |          | 2007 |       | 2006 |   | 2005 
| | -------- | ---- | ----- | ---- | - | -----
| | Current  | $    | 3,669 |      | $ | 2,552
| | Deferred |      | 638   |      |   | 2,157
| |          | $    | 4,307 |      | $ | 4,709

48

---

The reconciliation between the
effective tax rate and the statutory federal tax rate on income from continuing
operations as a percent is as follows:

| | ****Provision****                                  |  | 2007 |   |   | 2006 |      |   | 2005 | 
| | -------------------------------------------------- |  | ---- | - | - | ---- | ---- | - | ---- | 
| | Statutory federal income tax
    rate              |  | 34.0 |   | % |      | 34.0 |   | %    | 
| | State taxes, net of federal income tax
    benefit |  | 2.8  |   |   |      | 2.1  |   |      | 
| | Reduction

in deferred tax assets due
      to     |  |      |   |   |      |      |   |      | 
| | change in

state tax law                           |  | 4.8  |   |   |      | -    |   |      | 
| | Abandonment of state net operating
    losses      |  | 4.8  |   |   |      | -    |   |      | 
| | Impact of foreign
    operations                   |  | (0.4 | ) |   |      | 0.3  |   |      | 
| | Effect of change in valuation
    allowance        |  | (9.8 | ) |   |      | (0.4 | ) |      | 
| | Stock-based compensation                           |  | 0.6  |   |   |      | 0.7  |   |      | 
| | Section 199
deduction                              |  | (0.9 | ) |   |      | (0.8 | ) |      | 
| | Extraterritorial income
    exclusion              |  | (0.8 | ) |   |      | (1.3 | ) |      | 
| | Other                                              |  | 0.1  |   |   |      | (1.6 | ) |      | 
| |                                                    |  | 35.2 |   | % |      | 33.0 |   | %    | 

At September 30, 2007, the Company
had recorded an income tax receivable of $961, which is included in other
accounts receivable in the accompanying consolidated balance sheets.

The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets
and deferred tax liabilities at September 30, 2007 and 2006 are as
follows:

| |                                                           | 2007 |        | 2006
| | --------------------------------------------------------- | ---- | ------ | ----
| | Deferred tax assets:                                      |      |        |     
| | Inventories                                               | $    | 201    |     
| | Warranty liability                                        |      | 630    |     
| | Accrual for
      compensated absences                    |      | 122    |     
| | Stock based compensation                                  |      | 156    |     
| | Accrual for
      retiree medical benefits                |      | 1,393  |     
| | Accounts receivable allowance                             |      | 12     |     
| | Loss from investment in affiliate (Ajay Sports,
    Inc.) |      | 3,845  |     
| | Tax gain on sale/leaseback                                |      | 648    |     
| | Accrued
      environmental obligations                   |      | 385    |     
| | Accrued other liabilities                                 |      | 235    |     
| | Pension plan
      comprehensive loss adjustment          |      | -      |     
| | State net operating loss carryforwards                    |      | 133    |     
| | Total deferred
      tax assets                           |      | 7,760  |     
| | Less valuation allowance                                  |      | (5,433 | )   
| | Deferred tax assets, net of valuation allowance           |      | 2,327  |     
| |                                                           |      |        |     
| | Deferred tax liabilities:                                 |      |        |     
| | Plant and equipment                                       |      | 368    |     
| | Pension plan comprehensive loss adjustment                |      | 12     |     
| | Net deferred income tax assets                            | $    | 1,947  |     
| |                                                           |      |        |     
| | Current deferred income tax assets                        | $    | 1,617  |     
| | Long-term
      deferred income tax assets                |      | 6,151  |     
| | Long-term deferred income tax liabilities                 |      | (388   | )   
| | Valuation
      allowance                                 |      | (5,433 | )   
| |                                                           | $    | 1,947  |     

49

---

At September 30, 2007, the Company
has approximately $3,087 of state net operating loss carry-forwards, which are
available to the Company in certain state tax jurisdictions and begin to expire
in 2014. These state net operating loss carry-forwards have a full valuation
allowance against them at September 30, 2007.

The Company is subject to income
taxes in the United States and foreign jurisdictions. In the ordinary course of
the Companys business there are transactions where the ultimate tax
determination is uncertain. The Company believes that is has adequately provided
for income tax issues not yet resolved with federal, state, local and foreign
tax authorities. If an ultimate tax assessment exceeds the Companys estimate of
tax liabilities, an additional charge to expense would result.

Pretax earnings of a foreign
subsidiary or affiliate are subject to U.S. taxation when effectively
repatriated. U.S. income taxes and foreign withholding taxes have not been
provided on undistributed earnings of foreign subsidiaries. The Company intends
to reinvest these earnings indefinitely in its foreign subsidiaries. It is not
practical to determine the amount of income tax payable in the event the Company
repatriated all undistributed foreign earnings. However, if these earnings were
distributed to the U.S. in the form of dividends or otherwise, the Company would
be subject to additional U.S. income taxes and foreign withholding taxes.

The Companys subsidiary in China is
entitled to a five-year tax holiday, pursuant to which it is exempted from
paying the enterprise income tax for calendar 2007, the year in which it first
has positive earnings, and calendar 2008. After the two-year exemption period,
the Companys subsidiary in China will be entitled to a 50% exemption for
calendar 2009 through 20011.

Note 10. Commitments and
Contingencies

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

The soil and
groundwater at our Portland, Oregon facility contain certain contaminants, which
were deposited from approximately 1968 through 1995. Some of this contamination
has migrated offsite to neighboring properties. The Company has retained an
environmental consulting firm to investigate the extent of the contamination and
to determine what remediation will be required and the associated costs. During
fiscal 2004, the Company entered into the Oregon Department of Environmental
Qualitys voluntary clean-up program and during fiscal 2004 the Company
established a liability of $950 for this matter. At September 30, 2007, the
Company recorded an additional liability of $546 based on remaining cost
estimates determined by the Companys environmental consulting firm. As of
September 30, 2007, the total liability recorded is $1,046 (and excludes any
potential claim recovery as discussed below) and is recorded in accrued expenses
in the accompanying consolidated balance sheets. The Company has asserted a
contractual indemnity claim against Dana Corporation (Dana), from which it
acquired the property, and contribution claims against other prior owners of the
property as well as businesses previously located on the property (including
Blount, Inc. (Blount) under the Federal Superfund Act and the Oregon Cleanup
Law. Dana is subject to a pending bankruptcy petition. On November 20, 2007, the
Company and Blount executed a settlement agreement with Dana with respect to
these claims. Dana is submitting the settlement agreement to the bankruptcy
court for approval; the settlement agreement also is contingent on the courts
approval of Danas proposed plan of reorganization in substantially the form
described in Danas disclosure statement in effect as of this same date. If the
settlement agreement is approved by the bankruptcy court and the plan of
reorganization is approved, Blount will be obligated to pay the Company $625 and
the Companys claim against Dana will be allowed as an unsecured general
creditors claim in the amount of $750. The Company anticipates the claim will
be discounted and paid primarily in stock in the reorganized corporation, all in
accordance with Danas plan of reorganization. At this time the Company is not
able to reasonably estimate the net amount it may be able to realize from this
unsecured claim.

50

---

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 and it believes that the liability recorded at September 30, 2007
will be sufficient to cover these 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.

The Company leases certain
facilities under non-cancelable operating leases. In addition, the Company
leases certain equipment used in their operations. Future minimum lease payments
under all non-cancelable operating leases are approximately as follows for
annual periods ending September 30,

2008
    $
    5172009
    
    4682010
    
    4352011
    
    4302012
    
    335Total
    $
    2,185


Rent expense under operating leases
was $436, $324 and $138 for the years ended September 30, 2007, 2006 and 2005,
respectively.

Note 11. Restricted Stock

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, under Mr. Cavanaghs
employment agreement the Company has the option to pay up to 7% of his annual
base salary in shares of common stock of the Company and exercised that option
for each of fiscal 2005, 2006 and 2007. 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. In the third quarter of fiscal 2006, the Company paid 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 and in the second quarter
of fiscal 2005, the Company paid 7% of Mr. Cavanaghs fiscal 2005 salary in
common stock and issued 2,137 shares of restricted common stock at $7.68 per
share.

51

---

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. 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.

In June 2005, the Company issued
12,722 shares of common stock to Mr. Cavanagh, at $7.86 per share. As part of
his employment agreement, he was entitled to a one-time signing bonus payable in
May 2005, of which $100 was payable in shares of common stock of the Company,
valued at the average trading price for the preceding 30 days and $100 was
payable in cash.

Note 12. Related Parties

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. 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.

Also on
September 30, 2004, the Company entered into a put/call option agreement with
American Industrial Partners Capital Fund III, L.P. (AIP). This option
agreement gave AIP the right to require the Company to repurchase, in whole or
in part, up to a maximum of 1,166,666 shares of the Companys common stock held
by AIP (the Put) during the period commencing on September 30, 2006 and ending
on September 30, 2007. During the first quarter of fiscal 2006, 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. In conjunction with these sales by AIP, the
put/call option agreement was terminated resulting in an increase in other
income of $10 and the parties were released from their obligations under this
agreement.

As part of the put/call option
agreement, if the Company failed to pay the price of the Put for the shares
required to be repurchased within 30 days after exercise of the Put by AIP, the
Company would have been required to issue to AIP shares of the Companys newly
designated Series C Preferred stock. In September 2007, the Series C Preferred
stock was cancelled by the Board of Directors through board resolution.

Note 13. Business Segment Information

The Company accounts for its
segments in accordance with SFAS No.131 Disclosures about Segments of an
Enterprise and Related Information. Geographic information for revenues are
allocated between the United States and International countries, depending on
whether the shipments are to customers within the United States or located
outside the United States. Revenues for each geographic location are as follows:



| | Year ended September
    30, |   | 2007   |  | 2006 |        | 2005
| | ---------------------------- | - | ------ |  | ---- | ------ | ----
| | North America (NAFTA):       |   |        |  |      |        |     
| | United States                | $ | 40,545 |  | $    | 47,473 |     
| | Canada                       |   | 5,280  |  |      | 7,101  |     
| | Mexico                       |   | 3,351  |  |      | 3,018  |     
| |                              | $ | 49,176 |  | $    | 57,592 |     

52

---

| | Europe:                      |   |        |  |   |        |  |   |       
| | ---------------------------- | - | ------ |  | - | ------ |  | - | ------
| | Belgium                      | $ | 5,340  |  | $ | 5,078  |  | $ | 4,920 
| | France                       |   | 2,694  |  |   | 1,456  |  |   | 815   
| | Sweden                       |   | 4,219  |  |   | 3,949  |  |   | 4,099 
| | Other                        |   | 1,226  |  |   | 1,196  |  |   | 1,035 
| |                              | $ | 13,479 |  | $ | 11,679 |  | $ | 10,869
| | Asia:                        |   |        |  |   |        |  |   |       
| | Korea                        | $ | 2,743  |  | $ | 2,828  |  | $ | 1,714 
| | China                        |   | 1,270  |  |   | 648    |  |   | 402   
| | Other                        |   | 1,691  |  |   | 1,468  |  |   | 1,199 
| |                              | $ | 5,704  |  | $ | 4,944  |  | $ | 3,315 
| |                             
| | Other:                       |   | 565    |  |   | 419    |  |   | 540   
| | Consolidated net
      sales | $ | 68,924 |  | $ | 74,634 |  | $ | 67,416
| |                             
| | Foreign sales                | $ | 28,379 |  | $ | 27,161 |  | $ | 23,769
| | United States
      sales    |   | 40,545 |  |   | 47,473 |  |   | 43,647
| | Consolidated net sales       | $ | 68,924 |  | $ | 74,634 |  | $ | 67,416

During the years ended September 30,
2007, 2006 and 2005, the Company operated in two geographic reportable segments
as shown in the table below.

| | Year ended September 30,      |   | 2007    |   | 2006 |   | 2005  
| | ----------------------------- | - | ------- | - | ---- | - | ------
| | Revenue  External Customers: |   |         |   |      |   |       
| | United States                 | $ | 68,034  |   |      | $ | 74,379
| | China                         |   | 890     |   |      |   | 255   
| |                               | $ | 68,924  |   |      | $ | 74,634
| |                              
| | Revenue  Intersegments:      |   |         |   |      |   |       
| | United States                 | $ | 3,288   |   |      | $ | 2,601 
| | China                         |   | 9,452   |   |      |   | 4,219 
| | Other                         |   | 512     |   |      |   | 341   
| | Eliminations                  |   | (13,252 | ) |      |   | (7,161
| |                               | $ | -       |   |      | $ | -     
| |                              
| | Income before income taxes:   |   |         |   |      |   |       
| | United States                 | $ | 12,059  |   |      | $ | 14,584
| | China                         |   | 143     |   |      |   | (333  
| | Other                         |   | 42      |   |      |   | 7     
| |                               | $ | 12,244  |   |      | $ | 14,258
| |                              
| | Total assets:                 |   |         |   |      |   |       
| | United States                 | $ | 27,945  |   |      | $ | 32,584
| | China                         |   | 4,242   |   |      |   | 3,084 
| | Other                         |   | 116     |   |      |   | 81    
| |                               | $ | 32,303  |   |      | $ | 35,749
| |                              
| | Long-lived assets:            |   |         |   |      |   |       
| | United States                 | $ | 8,141   |   |      | $ | 8,494 
| | China                         |   | 1,391   |   |      |   | 979   
| | Other                         |   | 44      |   |      |   | 11    
| |                               | $ | 9,576   |   |      | $ | 9,484 

53

---

Note 14. Employment
Agreements

In March 2007, the Company
entered into employment agreements with Dennis E. Bunday, its Executive Vice
President and Chief Financial Officer, Mark S. Koenen, Vice President of Sales
and Marketing and Gary A. Hafner, Vice President of Manufacturing. The contracts
specify an initial base salary per year, plus bonuses based on parameters
established by the board of directors. The agreements also provide for a
one-year severance payment under certain circumstances in the event the Company
terminates their employment.

On October 1, 2004, the Company entered into an employment agreement with
Patrick W. Cavanagh for the position of President and Chief Executive Officer.
The contract specifies an initial base salary per year, bonus parameters
established by the board of directors, relocation assistance and stock options
grants to be made in fiscal 2005. The agreement also provides for severance
payments under certain circumstances in the event the Company terminates his
employment.

Note 15. Quarterly Data
(unaudited)

The following
table summarizes the Companys quarterly financial data for the past two fiscal
years ended September 30, 2007 and 2006.

First
    
    Second
    
    Third
    
    Fourth2007
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    AnnualNet sales
    
    $
    18,442
    
    $
    18,309
    
    $
    15,822
    
    $
    16,351
    
    $
    68,924Cost of sales
    
    
    12,150
    
    
    12,174
    
    
    10,116
    
    
    10,712
    
    
    45,152Gross profit
    
    $
    6,292
    
    $
    6,135
    
    $
    5,706
    
    $
    5,639
    
    $
    23,772Operating expenses
    
    $
    2,799
    
    $
    3,049
    
    $
    2,962
    
    $
    3,133
    
    $
    11,943Net income
    
    $
    2,543
    
    $
    2,054
    
    $
    1,824
    
    $
    1,516
    
    $
    7,937Earnings per
      common shareBasic
    
    $
    0.34
    
    $
    0.28
    
    $
    0.24
    
    $
    0.20
    
    $
    1.06Diluted
    
    $
    0.33
    
    $
    0.27
    
    $
    0.24
    
    $
    0.20
    
    $
    1.03First
    
    Second
    
    Third
    
    Fourth2006
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    AnnualNet sales
    
    $
    16,132
    
    $
    18,796
    
    $
    19,898
    
    $
    19,808
    
    $
    74,634Cost of sales
    
    
    10,788
    
    
    11,995
    
    
    12,761
    
    
    12,564
    
    
    48,108Gross profit
    
    $
    5,344
    
    $
    6,801
    
    $
    7,137
    
    $
    7,244
    
    $
    26,526Operating expenses
    
    $
    2,657
    
    $
    2,896
    
    $
    2,924
    
    $
    3,222
    
    $
    11,699Net income
    
    $
    1,527
    
    $
    2,438
    
    $
    2,769
    
    $
    2,815
    
    $
    9,549Earnings per
      common shareBasic
    
    $
    0.20
    
    $
    0.33
    
    $
    0.37
    
    $
    0.38
    
    $
    1.29Diluted
    
    $
    0.20
    
    $
    0.32
    
    $
    0.36
    
    $
    0.37
    
    $
    1.25


54

---

ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND
PROCEDURES

Evaluation of Disclosure Controls
and Procedures

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

Design and Evaluation of Internal
Controls Over Financial Reporting

Report of Management

Our management is
responsible for establishing and maintaining adequate internal controls over
financial reporting. All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.

Under the supervision and with the participation of our management, we
assessed the effectiveness of our internal controls over financial reporting as
of September 30, 2007. In making this assessment, we used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control  Integrated Framework. Based on our assessment we believe
that, as of September 30, 2007, the Companys internal controls over financial
reporting are effective based on those criteria.

There has been no change in the Companys internal controls over
financial reporting that occurred during our fiscal quarter ended September 30,
2007 that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

55

---

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE

Information with respect to our directors and executive officers is
incorporated herein by reference to the sections entitled Election of
Directors and Management in our proxy statement for our 2008 annual meeting
of stockholders (the 2007 Proxy Statement) to be filed with the Securities and
Exchange Commission no later than 120 days after the end of our fiscal year
ended September 30, 2007.

ITEM 11. EXECUTIVE COMPENSATION

The section of our 2007 Proxy Statement entitled Executive Compensation
is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The section of our 2007 Proxy Statement entitled Securities Ownership of
Certain Beneficial Owners and Management is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS, RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE

The section of our 2007 Proxy Statement entitled Certain Relationships
and Related Party Transactions is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

The section of our 2007 Proxy Statement entitled Independent Registered
Public Accounting Firm is incorporated herein by reference.

56

---

PART IV

ITEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES

(a) The following
documents are filed as part of this report:

(1)Financial Statements-See Index to Financial
Statements at Item 8 on page 24 of this Annual Report on Form 10-K.

(2)Financial Statement
Schedules-All financial statement schedules are omitted either because they are
not required, not applicable or the required information is included in the
financial statements or notes thereto.

(3)Exhibits-See Exhibit Index beginning on
page 59.

57

---

SIGNATURES

Pursuant to the
requirements of Section 13 or 15(d) 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: |  | December 14,
      2007 |  | By |  | / s / PATRICK W. CAVANAGH                         
|----- |  | ----------------------- |  | -- |  | --------------------------------------------------
|      |  |                         |  |    |  | Patrick W.
      Cavanagh, Director, President and
|      |  |                         |  |    |  | Chief
      Executive Officer                     

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|Date: |  | December 14,
      2007 |  | By |  | / s / R. EUGENE GOODSON                           
|----- |  | ----------------------- |  | -- |  | --------------------------------------------------
|      |  |                         |  |    |  | R. Eugene
      Goodson, Chairman of the Board    
|     
|     
|Date: |  | December 14,
      2007 |  | By |  | / s / PATRICK W. CAVANAGH                         
|      |  |                         |  |    |  | Patrick W.
      Cavanagh, Director, President and
|      |  |                         |  |    |  | Chief
      Executive Officer                     
|     
|     
|Date: |  | December 14,
      2007 |  | By |  | / s / DENNIS E. BUNDAY                            
|      |  |                         |  |    |  | Dennis E.
      Bunday, Executive Vice President, 
|      |  |                         |  |    |  | Chief
      Financial Officer and                 
|      |  |                         |  |    |  | Principal
      Accounting Officer                
|     
|     
|Date: |  | December 14,
      2007 |  | By |  | / s / H. SAMUEL
      GREENAWALT                  
|      |  |                         |  |    |  | H. Samuel
      Greenawalt, Director              
|     
|     
|Date: |  | December 14,
      2007 |  | By |  | / s / DOUGLAS E. HAILEY                           
|      |  |                         |  |    |  | Douglas E.
      Hailey, Director                 
|     
|     
|Date: |  | December 14,
      2007 |  | By |  | / s / CARLOS P. SALAS                             
|      |  |                         |  |    |  | Carlos P.
      Salas, Director                   
|     
|     
|Date: |  | December 14,
      2007 |  | By |  | / s / PETER E. SALAS                              
|      |  |                         |  |    |  | Peter E.
      Salas, Director                    
|     
|     
|Date: |  | December 14,
      2007 |  | By |  | / s / DONN J. VIOLA                               
|      |  |                         |  |    |  | Donn J.
      Viola, Director                     

58

---

Williams Controls,
Inc.Exhibit Index

|Exhibit |          |            
|------- | -------- | -----------
|Number  |          | Description
|        | 2.01     |            
|        |         
|        | 3.01(a)  |            
|        |         
|        | 3.01(b)  |            
|        |         
|        | 3.01(c)  |            
|        |         
|        | 3.01(d)  |            
|        |         
|        | 3.01(e)  |            
|        |         
|        | 3.02     |            
|        |         
|        | 4.01     |            
|        |         
|        | 4.07     |            
|        |         
|        | 10.01(a) |            
|        |         
|        | 10.01(b) |            
|        |         
|        | 10.02    |            
|        |         
|        | 10.03    |            

59

---

| | 10.05 |  | Management Services Agreement, dated as of July 1, 2002, by and
      among American Industrial Partners, a Delaware general partnership, and
      the Company *(Incorporated by reference to
      Exhibit (d)(ix) to the Schedule TO-I/A filed on July 5, 2002*).                                                                                         
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      
| | 10.06 |  | Dolphin Side Letter, dated as of July 1, 2002*(Incorporated by reference to Exhibit (d)(xi) to the
      Schedule TO-I/A filed on July 5, 2002*).                                                                                                                                                                                                            
| |      
| | 10.10 |  | Credit Agreement, dated September 27, 2004, among Williams,
      Williams Controls Industries, Inc., a wholly-owned subsidiary of Williams,
      and Merrill Lynch Capital, a division of Merrill Lynch Business Financial
      Services, Inc. (Incorporated by reference to
      the Registrants report on Form 8-K, filed on September 29,
      2004)
| |      
| | 10.11 |  | Amended and Restated Management Services Agreement, dated September
      30, 2004, among Williams, American Industrial Partners and Dolphin
      Advisors, LLC (Incorporated by reference to the
      Registrants report on Form 8-K, filed on September 29,
      2004)                                                                                 
| |      
| | 10.12 |  | Employment Agreement with Dennis E. Bunday, Executive Vice
      President and Chief Financial Officer (Filed
      herewith)                                                                                                                                                                                                                                
| |      
| | 10.13 |  | Employment Agreement with Patrick W. Cavanagh, President and Chief
      Executive Officer (Incorporated by reference to
      the Registrants report on Form 10-K, filed on December 14,
      2006)                                                                                                                                                       
| |      
| | 10.14 |  | Revised Code of Ethics (*Incorporated by reference to the Registrants report on Form
      8-K, filed on October 3, 2006*)                                                                                                                                                                                                                                  
| |      
| | 10.15 |  | Employment Agreement with Mark S. Koenen, Vice President of Sales
      and Marketing (Filed herewith)                                                                                                                                                                                                                                                       
| |      
| | 10.16 |  | Employment Agreement with Gary A. Hafner, Vice President of
      Manufacturing (Filed herewith)                                                                                                                                                                                                                                                             
| |      
| | 18    |  | Preferability Letter of Independent Registered Public Accounting
      Firm related to the change in the measurement date for Williams pension
      plans from September 30 to August 31 (Incorporated by reference to Exhibit 18 to the Registrants annual
      report on Form 10-K for the fiscal year ended September 30,
      2004)                  
| |      
| | 21.01 |  | Schedule of Subsidiaries(Filed
      Herewith)                                                                                                                                                                                                                                                                                                               
| |      
| | 23.01 |  | Consent of Moss Adams LLP, Independent Registered Public Accounting
      Firm(Filed herewith)                                                                                                                                                                                                                                                               
| |      
| | 23.02 |  | Consent of KPMG LLP, Independent Registered Public Accounting Firm(Filed herewith)                                                                                                                                                                                                                                                                           
| |      
| | 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                                                                                                                                                                                                     
| |      
| | 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                                                                                                                                                                                                        

60

---