---

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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 1934For the
      fiscal year ended: September 30, 2008****ORo
    
    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
      72nd AvenuePortland,
      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 o
      No xIndicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or
      Section 15(d) of the Act. Yes o
      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 o     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.
      o     Indicate by check mark whether the registrant is a large
      accelerated filer, an accelerated filer, a non-accelerated filer, or a
      smaller reporting company. See the definitions of large accelerated
      filer, accelerated filer and smaller reporting company in Rule 12b-2
      of the Exchange Act Large
      accelerated filer o
    Accelerated
      filer o
    Non-accelerated
      filer o
    Smaller reporting
      company  x  Indicate by
      check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act) Yes o 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 $73,643,862 as of March 31, 2008.As of December 1, 2008, there
      were 7,534,642 shares of Common Stock
outstanding.


**Documents Incorporated by
Reference**The Registrant has incorporated by reference into Part III of this Form
10-K portions of itsProxy Statement for the
Annual Meeting of Stockholders to be held February 24, 2009.

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Williams Controls,
Inc.

Index to 2008 Form
10-K

|           |  |                                                                                           | Page 
|---------- |  | ----------------------------------------------------------------------------------------- | -----
|Part I     |  |                                                                                           |      
|Item 1.    |  | Business                                                                                  | 4-8  
|Item 1A.   |  | Risk Factors                                                                              | 8-11 
|Item 1B.   |  | Unresolved Staff
      Comments                                                           | 11   
|Item 2.    |  | Properties                                                                                | 11   
|Item 3.    |  | Legal
      Proceedings                                                                   | 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                                                                   | 14   
|Item 7.    |  | Managements
      Discussion and Analysis of Financial Condition and                     |      
|           |  | Results of Operations                                                                     | 14-22
|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                                                                      | 52   
|Item 9A.   |  | Controls and
      Procedures                                                             | 52-53
|Item 9B.   |  | Other Information                                                                         | 53   
|          
|Part III   |  |                                                                                           |      
|Item 10.   |  | Directors,
      Executive Officers and Corporate Governance                              | 54   
|Item 11.   |  | Executive Compensation                                                                    | 54   
|Item 12.   |  | Security
      Ownership of Certain Beneficial Owners and Management and
      Related    |      
|           |  | Stockholder Matters                                                                       | 54   
|Item 13.   |  | Certain Relationships and Related Transactions, and Director
      Independence           | 54   
|Item 14.   |  | Principal
      Accountant Fees and Services                                              | 54   
|          
|Part IV    |  |                                                                                           |      
|Item 15.   |  | Exhibits and
      Financial Statement Schedules                                          | 55   
|          
|Signatures |  |                                                                                           | 56   

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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); Williams Controls Europe GmbH (Williams Controls
Europe); and Williams Controls India Private Limited (Williams Controls
India).

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 are in the process of implementing
more stringent emissions standards for heavy trucks and transit busses.
Additionally, worldwide emissions regulations have been enacted that continue to
increase the use of electronic throttle controls in off-road equipment. We also
produce a line of pneumatic control products, which are generally 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.

We have
been producing electronic sensors for use in our electronic throttle control
systems since 2005. 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. As part of our sensor strategy, we have a license to use
certain non-contacting sensor technology from Moving Magnet Technology S.A.
During fiscal 2006 we began 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, 2008, we sold approximately 54% of our products in
the United States, 10% to Canada and Mexico for vehicles that are in part
produced for the United States market, and approximately 36% 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

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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, we established a manufacturing facility in
Suzhou, China and opened sales offices in Shanghai, China and Ismaning (which is
near Munich), Germany in 2005. 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 began a plan (the plan) to
realign its manufacturing operations as part of ongoing efforts to focus on its
core product competencies and improve its global competitiveness. The plan was
substantially completed in fiscal 2007. The plan consisted of outsourcing all of
the Companys die casting and machining operations from its Portland, Oregon
manufacturing facility to high-quality suppliers, primarily in Asia, and
relocating of the Companys assembly operations for the majority of its
pneumatic products from the Portland facility 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 for the twelve month periods ended September 30, 2007, which
were recorded in operating expenses in the accompanying consolidated statements
of operations. No realignment expense was recorded in fiscal 2008.

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,
Kongsberg Gruppen, ASA., 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.

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.

5

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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, 2008, 2007 and 2006, The
Volvo Group accounted for 19%, 17% and 16%, Paccar, Inc. accounted for 11%, 14%
and 17%, Freightliner, LLC accounted for 9%, 13% and 17%, Navistar International
Corporation accounted for 7%, 6% and 8% and Caterpillar, Inc. accounted for 7%,
6% and 5%, of net sales from operations, respectively. Approximately 46%, 41%
and 36% of net sales in fiscal 2008, 2007 and 2006 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
2008, 2007 and 2006, approximately 86%, 84% and 84%, respectively, 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 the Companys Portland, Oregon facility contains certain
contaminants, which were deposited from approximately 1968 through 1995. Some of
this contamination has migrated offsite to neighboring properties. The Company
has retained an environmental consulting firm to investigate the extent of the
contamination and to determine what remediation will be required and the
associated costs. During fiscal 2004, the Company entered into the Oregon
Department of Environmental Qualitys voluntary clean-up program 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 costs estimates determined by the Company with the help of
an environmental consulting firm. As of September 30, 2008, the total
liability recorded is $1,021 and is recorded in accrued expenses in the
accompanying consolidated balance sheet. The Company asserted and settled a
contractual indemnity claim against Dana Corporation (Dana), from which it
acquired the property, and contribution claims against the other prior owner of
the property, as well as businesses previously located on the property
(including Blount, Inc. (Blount) and Rosan, Inc. (Rosan)) under the Federal
Superfund Act and the Oregon Cleanup Law. During 2008, the Company entered into
a settlement agreement with Dana, Blount and Rosan in which it received total
cash payments from Dana, Blount and Rosan of $735 and shares of Dana stock equal
to approximately $337 at the time of settlement, and assumed the full obligation
to, and risks associated with, completing the remediation. The Company recorded
the shares received as available-for-sale securities in short-term investments
in the accompanying condensed consolidated balance sheets. As of September 30,
2008, the Company has recorded a total gain of $1,072, which was recorded in
operating expenses in the consolidated financial statements for the receipt of
the cash and stock.

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 2008, we had no product recalls. We are not aware
of any instances of non-compliance with the statute and applicable
regulations.

6

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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 2008, 2007 and 2006, the Company spent $4,015, $3,145 and $3,412,
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 annual renewal provisions if certain sales thresholds were
met. The Company is obligated to make royalty payments based on the number of
units it sells. Additionally, as part of the sale of 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 (now Kongsberg Gruppen, ASA
(Kongsberg)) adjustable pedal patents in exchange for Teleflex receiving fully
paid 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. We make royalty payments based on the number of units sold,
which includes minimum yearly royalties beginning in year three of this
agreement. 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
purchase certain of our component parts that are derived 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. 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. We
manufacture certain foot pedals using a contact position sensor manufactured for
Caterpillar, Inc., by a third party sensor manufacturer, which is used 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. None of our component suppliers are
considered to be a single source supplier and to be at risk. 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.

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
hourly employees engaged in manufacturing in the Portland, Oregon facility are
represented by the International Union, United Automobile Workers of America and
Amalgamated Local 492 (the UAW). The current five-year labor agreement expired
on August 31, 2008. As of the filing of this report on Form 10-K, the Company

7

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and the UAW have not entered into a new
agreement and the members of the UAW are currently working without a contract.
As of September 30, 2008, we employed a total of 46 people pursuant to this
labor agreement. As of September 30, 2008, we employed approximately 90
non-union employees in our Portland, Oregon facility, of which approximately 16
were engaged in manufacturing and approximately 74 were involved in sales,
engineering and administrative functions. As of September 30, 2008, we employed
120 employees in China, of which approximately 79 were engaged in manufacturing
and approximately 41 engaged in sales, engineering and administrative functions.
We also employed 2 employees in Europe as of September 30, 2008.

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 atwww.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.

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, 2008, 2007 and
2006, The Volvo Group accounted for 19%, 17% and 16%, Paccar, Inc. accounted for
11%, 14% and 17%, Freightliner, LLC accounted for 9%, 13% and 17%, Navistar
International Corporation accounted for 7%, 6% and 8% and Caterpillar, Inc.
accounted for 7%, 6% and 5%, of net sales from continuing operations,
respectively. The loss of any significant customer would adversely affect our
revenues and stockholder value.

8

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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 component parts from
suppliers and changes in the relationships with such suppliers, as well as
increases in the costs of raw materials that comprise our component and/or the
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 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 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 raw materials that comprise our component parts and/or the
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 toITEM 3  LEGAL PROCEEDINGS.

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.

Our
hourly employees engaged in manufacturing in the Portland, Oregon facility are
represented by the International Union, United Automobile Workers of America and
Amalgamated Local 492 (the UAW). The current five-year labor agreement expired
on August 31, 2008 and as of the filing of this report on Form 10-K the Company
and the UAW have not entered into a new agreement. The members of the UAW are
currently working without a contract and there can be no assurance that they
will continue to work without a contract. If we experience significant work
stoppages, as we did in fiscal 2003, we may 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.

9

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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.

Current economic conditions could
adversely affect our operations.

Financial
markets in the United States and abroad have experienced extreme disruption,
including severely diminished liquidity and credit availability. While these
conditions and the current economic downturn have not impaired our ability to
access credit markets to date, there can be no assurance that these conditions
will not adversely affect our business in the future, particularly if there is
further deterioration in the world financial markets and major economies. At
September 30, 2008, we had $8,000 available under our revolving credit facility
plus cash and cash equivalents at September 30, 2008 of $9,060. We were not
compliant with one financial covenant at September 30, 2008 and this non
compliance could limit our ability to borrow against the $8,000 currently
available under the revolving credit facility. We believe with our cash on hand
combined with cash provided by operations that we will be able to sufficiently
meet our working capital needs, however, there can be no assurance the current
economic conditions will not adversely affect our financial
condition.

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, 2008, this liability
totaled $1,021. 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 other European nations, purchase
components from suppliers in China, Mexico and Europe, have a manufacturing and
sales operation in China, and a sales and technical center in Germany. For the
years ended September 30, 2008, 2007 and 2006, foreign sales were approximately
46%, 41%, and 36% of net sales, respectively. Although currently a majority of
our sales and purchases are made in U.S. dollars, an increasing amount of our
purchases and sales are made in RMB and we anticipate that over time more of our
purchases of component parts

10

---

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.

Complying with the laws
applicable to the United States and 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 the United States and 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 Global Market and is thinly
traded. 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 foot 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 sales
operation. We believe that these facilities will be adequate to meet our
existing needs and our needs for the foreseeable future.

11

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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.

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). The complaint seeks an
unspecified amount of damages on behalf of the class. During the second quarter
of fiscal 2008, the Oklahoma district court granted the plaintiffs class action
status. The Company and Ford appealed the District Courts class certification
ruling to the Court of Civil Appeals of the State of Oklahoma (Appeals Court)
and during the second quarter of fiscal 2008, the Appeals Court, in a 3-to-0
decision, reversed the District Courts ruling and decertified the nationwide
class. As permitted under Oklahoma law, the plaintiffs filed for a re-hearing by
the Appeals Court and during the third quarter of fiscal 2008, the Appeals Court
denied the motion for re-hearing. The plaintiffs have since appealed the Court
of Civil Appeals decision to the Oklahoma Supreme Court, which has not taken
action yet. The Company continues to believe the claim to be without merit and
intends to continue to vigorously defend against this action. Although the
Appeals Court decision is favorable to the Company, there can be no assurance
that the ultimate 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 may incur future litigation expenses in defending this
litigation.

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 2008.

12

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PART II

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

Market Prices of Common
Stock

Our
common stock is traded on the NASDAQ Global Market under the symbol WMCO. The
following table sets forth the high and low closing prices of our common stock
for each fiscal quarter for the past two fiscal years as reported on the NASDAQ
Global Market:

2008
    
    2007High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    18.05
    
    $
    16.25
    
    $
    14.94
    
    $
    12.70Second
      Quarter
    
    $
    16.75
    
    $
    13.24
    
    $
    17.71
    
    $
    14.30Third Quarter
    
    $
    14.30
    
    $
    12.40
    
    $
    17.96
    
    $
    16.25Fourth
      Quarter
    
    $
    13.48
    
    $
    11.96
    
    $
    18.05
    
    $
    16.57


Dividend
Policy

There
were 311 record holders of our common stock as of December 1, 2008. 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 at this time.

Performance
Graph

The graph
below compares the cumulative total stockholder return of our common stock with
the cumulative total return of the NASDAQ Composite Index and a peer group of
companies. The graph shows the value for the period beginning September 30, 2003
and ending September 30, 2008. The graph assumes that $100 was invested on
September 30, 2003.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL
RETURNAmong Williams Controls, Inc., The
NASDAQ Composite Index And A Peer Group



Total Return Analysis

|                        |  | 9/30/03 |        | 9/30/04 |   | 9/30/05 |  | 9/30/06 |        | 9/30/07 |   | 9/30/08
|----------------------- |  | ------- | ------ | ------- | - | ------- |  | ------- | ------ | ------- | - | -------
|Williams Controls, Inc. |  | $       | 100.00 |         | $ | 185.19  |  | $       | 234.26 |         | $ | 391.05 
|NASDAQ
      Composite  |  | $       | 100.00 |         | $ | 107.74  |  | $       | 123.03 |         | $ | 131.60 
|Peer Group              |  | $       | 100.00 |         | $ | 130.29  |  | $       | 131.16 |         | $ | 158.48 

13

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

|Consolidated
      Statement of Operations Data:       |  | Year ended September 30
|------------------------------------------------------ |  | -----------------------
|                                                       |  | 2008                   
|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           
|                                                       |  | 2008                   
|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.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 2008. 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 2008, we saw our net sales decrease $3,143 or 4.6% primarily due to the
continued decline in the NAFTA market. Our NAFTA truck sales during fiscal 2008
decreased approximately 34% from the prior year. Offsetting the reduction in
sales for NAFTA trucks, we saw a significant increase in sales in fiscal 2008 to
the Asian market of 51% over fiscal 2007 levels and an 8% increase in European
sales over the prior year. For the year ended September 30, 2008, we sold
approximately 54% of our products in the United States, 10% to Canada and Mexico
for vehicles that are in part produced for the United States market and
approximately 36% to other international markets. In fiscal 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. Net income in fiscal 2008 was
$7,830, compared to net income in fiscal 2007of $7,937. As a result of increases
in cash flows from operations, we paid down our remaining term loan debt of
$1,000 in fiscal 2008.

As we
move forward into fiscal 2009 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

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Results of Operations

Financial Summary (Dollars in
Thousands)

|                                                   |  |      |        |      |  |      |        |      |  |      |        |   |  | 2007 to |    | 2006 to
|-------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | ------- | -- | -------
|                                                   |  | 2008 |        | 2007 |  | 2006 |        | 2008 |  | 2007
|Net sales                                          |  | $    | 65,781 |      |  | $    | 68,924 |      |  | $    | 74,634 |   |  | (4.6    | )% |        
|Cost of
      sales                                |  |      | 42,960 |      |  |      | 45,152 |      |  |      | 48,108 |   |  | (4.9    | )% |        
|Gross profit                                       |  |      | 22,821 |      |  |      | 23,772 |      |  |      | 26,526 |   |  | (4.0    | )% |        
|Research and
      development                     |  |      | 4,015  |      |  |      | 3,145  |      |  |      | 3,412  |   |  | 27.7    | %  |        
|Selling                                            |  |      | 2,727  |      |  |      | 2,163  |      |  |      | 2,065  |   |  | 26.1    | %  |        
|Administration                                     |  |      | 5,500  |      |  |      | 5,898  |      |  |      | 5,640  |   |  | (6.7    | )% |        
|Gain from settlement of environmental claims       |  |      | (1,072 | )    |  |      |       |      |  |      |       |   |  | NM      |    |        
|Realignment of
      operations                    |  |      |       |      |  |      | 737    |      |  |      | 582    |   |  | NM      |    |        
|Operating income                                   |  | $    | 11,651 |      |  | $    | 11,829 |      |  | $    | 14,827 |   |  |         |    |        
|                                                  
|As a percentage of net sales:                      |  |      |        |      |  |      |        |      |  |      |        |   |  |         |    |        
|Cost of sales                                      |  |      | 65.3   | %    |  |      | 65.5   | %    |  |      | 64.5   | % |  |         |    |        
|Gross margin                                       |  |      | 34.7   | %    |  |      | 34.5   | %    |  |      | 35.5   | % |  |         |    |        
|Research and development                           |  |      | 6.1    | %    |  |      | 4.6    | %    |  |      | 4.6    | % |  |         |    |        
|Selling                                            |  |      | 4.1    | %    |  |      | 3.1    | %    |  |      | 2.8    | % |  |         |    |        
|Administration                                     |  |      | 8.4    | %    |  |      | 8.6    | %    |  |      | 7.6    | % |  |         |    |        
|Gain
      from settlement of environmental claims |  |      | (1.6   | %)   |  |      |       |      |  |      |       |   |  |         |    |        
|Realignment of operations                          |  |      |       |      |  |      | 1.1    | %    |  |      | 0.8    | % |  |         |    |        
|Operating income                                   |  |      | 17.7   | %    |  |      | 17.2   | %    |  |      | 19.9   | % |  |         |    |        
|NM  not
      meaningful                          |  |      |        |      |  |      |        |      |  |      |        |   |  |         |    |        

Comparative Years Ended September
30, 2008, 2007 and 2006

|                                       |  |   |        |  |      |        |      |   |        |  | Percent Change
|-------------------------------------- |  | - | ------ |  | ---- | ------ | ---- | - | ------ |  | --------------
|                                       |  |   |        |  |      |        |      |   |        |  | 2007 to       
|For the Year Ended September
      30: |  |   | 2008   |  | 2007 |        | 2006 |   | 2008   |  | 2007          
|Net sales                              |  | $ | 65,781 |  | $    | 68,924 |      | $ | 74,634 |  | (4.6          

Net sales
decreased $3,143 for the year ended September 30, 2008 as compared to the year
ended September 30, 2007, primarily due to an overall decrease in the build
rates of heavy trucks in the North American market. Sales to NAFTA truck
customers declined 34% when compared to the same period in fiscal 2007. The
Companys share of this market and unit pricing remained essentially unchanged
from the prior year. Sales to our Asian and European truck customers increased
approximately 51% and 8%, respectively, compared to the twelve months ended
September 30, 2007. World-wide sales in the off-road market declined
approximately 4%. The increases in sales to Asian and European truck customers
helped to offset a portion of the decline from the North American truck market
and worldwide off-road market.

We expect
that electronic throttle control sales will increase or decrease in the future
in line with changes in heavy truck, transit bus and off-road production volumes
in the various geographic markets in which we serve and increase or decrease
when product applications change. Additionally, competitive pricing may continue
to reduce per unit pricing. The change in emissions regulations in the United
States, effective January 1, 2007, had a negative impact on truck sales in North
America beginning in our second quarter of fiscal 2007 and continued through the
first half of fiscal 2008. In addition, higher fuel costs and other negative
economic factors in the United States in 2008 negatively impacted the NAFTA
heavy truck market. In the first fiscal quarter of 2009, we have begun to see a
significant reduction in the number of units of trucks, and to a lesser degree
off-road vehicles, built world-wide due to the significant recessionary
pressures in the United States and portions of the rest of the world. A number
of our large truck OEM customers have publicly announced reductions in build
rates which will impact our sales to those customers. It is uncertain how
protracted or severe the current financial situation will be world-wide and the
impact it may have on the Company.

15

---

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.

|                                       |  |   |        |  |      |        |      |   |        |  | Percent Change
|-------------------------------------- |  | - | ------ |  | ---- | ------ | ---- | - | ------ |  | --------------
|                                       |  |   |        |  |      |        |      |   |        |  | 2007 to       
|For the Year Ended September
      30: |  |   | 2008   |  | 2007 |        | 2006 |   | 2008   |  | 2007          
|Gross profit                           |  | $ | 22,821 |  | $    | 23,772 |      | $ | 26,526 |  | (4.0          

Gross
profit was $22,821, or 34.7%, of net sales for the year ended September 30,
2008, a decrease of $951 from the gross profit of $23,772, or 34.5%, of net
sales in the comparable fiscal 2007 period.

The
decrease in gross profit in fiscal 2008 is primarily driven by the 34% net
decrease in sales of electronic throttle control systems to North American heavy
truck customers. Beginning in late fiscal 2008, we began to see a decline in the
order rates from some of our principal truck OEMs due to recessionary pressures
in the United States and other portions of the world. That, combined with the
public announcement of reduced truck, and to a lesser degree off-road vehicle,
build rates in early fiscal 2009 could negatively impact our sales and gross
profit margins in fiscal 2009. 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 net material costs due to
continued efforts in global sourcing and the production of our own internally
developed contacting and non-contacting sensors. Throughout fiscal 2007 and the
majority of fiscal 2008, gross profit was negatively impacted by higher purchase
prices for certain raw materials. Overhead expenses decreased between periods,
but increased slightly as a percentage of sales.

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.

|                                       |  |   |       |  |      |       |      |   |       |  | Percent Change
|-------------------------------------- |  | - | ----- |  | ---- | ----- | ---- | - | ----- |  | --------------
|                                       |  |   |       |  |      |       |      |   |       |  | 2007 to       
|For the Year Ended September
      30: |  |   | 2008  |  | 2007 |       | 2006 |   | 2008  |  | 2007          
|Research and development               |  | $ | 4,015 |  | $    | 3,145 |      | $ | 3,412 |  | 27.7          

Research
and development expenses increased $870 for the year ended September 30, 2008
compared to the same period in fiscal 2007. The Companys research and
development expenditures will fluctuate based on the programs and products under
development at any given point in time. The increase in research and development
expense is primarily attributable to operating our Conceptual Development
Center, which was completed in mid fiscal 2007. Overall, we expect research and
development expenses to increase over fiscal 2007 levels due to additional new
product design projects and a full year of the Conceptual Development Center.

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.

16

---

|                                       |  |   |       |  |      |       |      |   |       |  | Percent Change
|-------------------------------------- |  | - | ----- |  | ---- | ----- | ---- | - | ----- |  | --------------
|                                       |  |   |       |  |      |       |      |   |       |  | 2007 to       
|For the Year Ended September
      30: |  |   | 2008  |  | 2007 |       | 2006 |   | 2008  |  | 2007          
|Selling                                |  | $ | 2,727 |  | $    | 2,163 |      | $ | 2,065 |  | 26.1          

Selling
expenses increased $564 for the year ended September 30, 2008 as compared to the
same period in fiscal 2007 mainly due to higher overall salaries and expanded
selling and marketing efforts, including expenses associated with sales and
marketing related travel in the European, Russian, Chinese, South American and
Australian markets and increased emphasis in off-road markets world-wide.

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.

|                                       |  |   |       |  |      |       |      |   |       |  | Percent Change
|-------------------------------------- |  | - | ----- |  | ---- | ----- | ---- | - | ----- |  | --------------
|                                       |  |   |       |  |      |       |      |   |       |  | 2007 to       
|For the Year Ended September
      30: |  |   | 2008  |  | 2007 |       | 2006 |   | 2008  |  | 2007          
|Administration                         |  | $ | 5,500 |  | $    | 5,898 |      | $ | 5,640 |  | (6.7          

Administration expenses for the year ended September 30, 2008 decreased
$398 as compared to the same period in fiscal 2007. The decrease in
administration expenses is primarily due to a reduction in legal fees, including
those associated with the class action lawsuit, which is also discussed in Note
9 in the Notes to Consolidated Financial Statements. Overall, legal fees
decreased approximately 48%. Administration expense increased for design changes
to our compensation structure, employee recruitment and relocation costs.
Included in administration expenses for the year ended September 30, 2007 was
the recording of an additional $546 of environmental liability as discussed in
Note 9 in the Notes to Consolidated Financial Statements. During the years ended
September 30, 2008 and 2007, we recorded stock option compensation expense of
$412 and $371, respectively, in administration expense as a result of SFAS No.
123R as discussed in Note 10 in the Notes to Consolidated Financial
Statements.

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 9 in the
Notes to Consolidated Financial Statements. Administration expenses also
increased during fiscal 2007 as we 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 9, decreased approximately 36%. During
the years ended September 30, 2007 and 2006, we recorded stock option
compensation expense of $371 and $305, respectively, in administration expense
as a result of SFAS No. 123R as discussed in Note 10 in the Notes to
Consolidated Financial Statements.

|                                                   |  |    |       |   |      |    |      |    |      | Percent Change
|-------------------------------------------------- |  | -- | ----- | - | ---- | -- | ---- | -- | ---- | --------------
|                                                   |  |    |       |   |      |    |      |    |      | 2007**to**    
|For the Year Ended September
      30:             |  |    | 2008  |   | 2007 |    | 2006 |    | 2008 |               
|Gain from settlement of environmental
      claims |  | ($ | 1,072 | ) |      | $ |      | $ |      | NM            

As part
of its contractual indemnity claim against Dana and contribution claims against
Blount and Rosan, as described in Note 9 in the Notes to Consolidated Financial
Statements, during fiscal 2008 the Company received cash payments totaling $735
from Dana, Blount and Rosan and shares in Dana equal to approximately $337 at
the time of settlement. As of September 30, 2008, the Company recorded a gain of
$1,072 in operating expenses in the accompanying consolidated financial
statements.

17

---

|                                       |  |    |      |      |      |      |      | Percent Change
|-------------------------------------- |  | -- | ---- | ---- | ---- | ---- | ---- | --------------
|                                       |  |    |      |      |      |      |      | 2007
      to 
|For the Year Ended September
      30: |  |    | 2008 |      | 2007 |      | 2006 |               
|Realignment of operations              |  | $ |      | $737 |      | $582 |      | NM            

The
Company recorded expenses of $737 and $582, respectively, for the years ended
September 30, 2007 and 2006 related to its realignment of operations as
discussed in Note 1 in the Notes to Consolidated Financial Statements. No
realignment expense was recorded in fiscal year 2008.

|                                       |  |   |      |   |  |      |      |   |      |   |       |      |  | Percent Change |     
|-------------------------------------- |  | - | ---- | - |  | ---- | ---- | - | ---- | - | ----- | ---- |  | -------------- | ----
|                                       |  |   |      |   |  |      |      |   |      |   |       |      |  | 2007
      to  |     
|For the Year Ended September
      30: |  |   | 2008 |   |  | 2007 |      |   | 2006 |   |       | 2008 |  |                | 2007
|Interest income                        |  | $ | (64  | ) |  | $    | (136 | ) |      | $ | (70   | )    |  | (52.9          | )%  
|Interest
      expense                 |  | $ | 140  |   |  | $    | 868  |   |      | $ | 1,414 |      |  | (83.9          | )%  

Interest
expense on debt decreased $728 for the year ended September 30, 2008 compared to
the same period in fiscal 2007 due to lower levels of debt. As of September 30,
2008, all of our debt has been fully paid off.

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 was $1,000.

|                                       |  |   |      |   |  |      |        |   |      |   |      |      |  | Percent Change
|-------------------------------------- |  | - | ---- | - |  | ---- | ------ | - | ---- | - | ---- | ---- |  | --------------
|                                       |  |   |      |   |  |      |        |   |      |   |      |      |  | 2007
      to 
|For the Year Ended September
      30: |  |   | 2008 |   |  | 2007 |        |   | 2006 |   |      | 2008 |  | 2007          
|Other income, net                      |  | $ | (205 | ) |  | $    | (1,147 | ) |      | $ | (765 | )    |  | NM            

Other
income was $205 in fiscal 2008 and consisted primarily of a $109 gain related to
the sales and disposal of certain property, plant and equipment and foreign
currency gains. 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 5 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 5 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.

|                                       |  |        |      |        |      |        |      | Percent Change |     
|-------------------------------------- |  | ------ | ---- | ------ | ---- | ------ | ---- | -------------- | ----
|                                       |  |        |      |        |      |        |      | 2007
      to  |     
|For the Year Ended September
      30: |  |        | 2008 |        | 2007 |        | 2006 |                | 2008
|Income tax expense                     |  | $3,950 |      | $4,307 |      | $4,709 |      | (8.3           | )%  

In fiscal
2008, the Company recorded income tax expense of $3,950 compared to $4,307 in
fiscal 2007 and $4,709 in fiscal 2006. The overall tax rate was 33.5% in fiscal
2008 compared to 35.2% and 33.0% in fiscal 2007 and 2006, respectively. The
decrease in tax rate from fiscal 2008 to fiscal 2007 is primarily due to an
increase in the United States Domestic Manufacturing Credit and a larger
percentage of the Companys earnings being taxed at the lower Chinese tax rate.
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.

Financial Condition, Liquidity
and Capital Resources

Cash
generated from operations was $9,946 for the year ended September 30, 2008, an
increase of $1,527 from the cash generated from operations of $8,419 for the
year ended September 30, 2007. Current year cash flows from operations included
net income of $7,830 and a non-cash deferred tax provision of $495. Cash flows
from operations for the year ended September 30, 2007 included net income of
$7,937 and a non-cash deferred tax provision of $638.

18

---

Changes
in working capital items used cash of $408 for the year ended September 30, 2008
compared to a $1,639 use of cash in the corresponding prior year period. Timing
of collections on receivables and higher sales levels in the fourth quarter of
fiscal 2008 versus fiscal 2007 resulted in a use of cash of $1,563 in fiscal
2008 compared with an increase in cash of $889 due to the timing of the
collection of receivables in the same period of fiscal 2007. 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, the 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 efforts have been completed. For the year ended
September 30, 2008 changes in inventory generated cash of $937 compared to a
generation of cash of $766 for the year ended September 30, 2007. Cash flows for
the years ended September 30, 2008 and 2007 included payments to fund our
pension plans of $1,307 and $1,634, respectively. Although the recessionary
pressures in the United States and world-wide will have an uncertain impact on
our future cash flow, we believe that we will continue to generate positive cash
flow from continuing operations.

Cash used
in investing activities was $1,680 for the year ended September 30, 2008 and
included $1,791 of purchases of property, plant and equipment offset slightly by
$111 of proceeds from the sales of property, plant and equipment. 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 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 $3,000 in capital expenditures for the year ended September 30,
2009.

Cash used
in financing activities was $827 for the year ended September 30, 2008, compared
to cash used in financing activities of $7,280 for the year ended September 30,
2007. The use of cash for financing activities for fiscal 2008 primarily relates
to the payoff of our Merrill Lynch term loan of $1,000 partially offset by cash
proceeds of $173 from the exercise of stock options. 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.

At
September 30, 2008, we had $8,000 available under our revolving credit facility
plus cash and cash equivalents at September 30, 2008 of $9,060. We were not
compliant with one financial covenant at September 30, 2008 and this non
compliance could limit our ability to borrow against the $8,000 available under
the revolving credit facility. We have not obtained a waiver with our lender GE
Capital as of the filing of these financial statements, however, we believe when
our cash on hand is combined with cash provided by operations, it will be
sufficient to meet our working capital needs on a short-term and long-term basis
as well as our capital expenditure needs.

In October 2008, the
Companys Board of Directors authorized the purchase, from time to time, of up
to $5,000 of shares of the Companys common stock. Repurchases may be made in
the open market or through block trades, in compliance with Securities and
Exchange Commission guidelines, subject to market conditions, applicable legal
requirements and other factors. The Company has no obligation to repurchase
shares under the repurchase program and the timing, actual number and price of
shares to be purchased will depend on the performance of the Companys stock
price, general market conditions, and various other factors within the
discretion of management. As of the filing of these financial statements, we
have repurchased approximately 70,000 shares of common stock at a total value of
approximately $780.

Contractual Obligations as of
September 30, 2008

At
September 30, 2008, our contractual obligations consisted of operating lease
obligations and a license agreement. We do not have any material letters of
credit, purchase commitments, or debt guarantees outstanding at September 30,
2008. Maturities of these contractual obligations consist of the
following:

|                                      |  | Payments due by
  period
|------------------------------------- |  | ------------------------
|                                      |  |                         
|                                      |  | Total                   
|Operating leases                      |  | $                       
|MMT license  minimum
      royalties |  |                         
|                                      |  | $                       

19

---

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, 2008 related to our pension plans and
post-retirement medical plan of $1,452 and $3,155, respectively. We funded
$1,307 to our pension plans in fiscal 2008 and we expect to make payments of
$183 in fiscal 2009 to fund our pension plans.

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 and 2006, the Company was
judicially released from and reversed $889 and $744, respectively, of old
accounts payable resulting in a gain, which has been recorded in other (income)
expense in the accompanying consolidated statements of operations. No amounts
were released and reversed during fiscal 2008. 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 6.97% to determine our
pension benefit obligations at September 30, 2008 and a rate of 6.25% to
determine our net periodic benefit cost in fiscal 2008. A 1.0% decrease in these
discount rates would have increased our pension benefit obligations at the end
of fiscal 2008 by $1,337 and increased our net periodic benefit cost in 2008 by
$119. A 1.0% increase in discount rates would have decreased our pension
obligations at September 30, 2008 by $1,123 and decreased our net periodic
benefit cost in 2008 by $103. 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, 2008 by $303
and increased our post-retirement benefit expense in 2008 by $9. A 1.0% increase
in discount rate would have decreased our post-retirement benefit obligation at
September 30, 2008 by $258 and decreased our post-retirement benefit expense in
2008 by $10.

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 7 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 2008 by $116. 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 2008, decreasing gradually to 5.0% in 2017 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, 2008 by $259 and increased
post-retirement benefit expense in 2008 by $23. A 1.0% decrease in assumed
healthcare cost trend rates would have decreased the post-retirement benefit
obligation by $225 at the end of fiscal 2008 and decreased post-retirement
benefit expense in 2008 by $19.

21

---

Stock-Based
Compensation Expense

We use
SFAS No. 123R for computing share-based compensation expense, 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.

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 May
2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting Principles. This statement
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements presented
in conformity with generally accepted accounting principles in the United
States. This statement is effective 60 days following the approval of the
Securities and Exchange Commission. The Company does not expect the effects of
adopting this statement to be significant.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations. SFAS No. 141R changes the accounting for business combinations in
a number of areas including the treatment of contingent consideration,
preacquisition contingencies, transaction costs, in-process research and
development and restructuring costs. In addition, under SFAS No. 141R, changes
in an acquired entitys deferred tax assets and uncertain tax positions after
the measurement period will impact income tax expense. This statement will be
effective as of the beginning of an entitys first fiscal year that begins after
December 15, 2008. This statement, when adopted, will change the Companys
accounting treatment for business combinations on a prospective
basis.

In
February 2007, the 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
will adopt SFAS No. 159 during the first quarter of fiscal 2009. 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.

22

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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 revolving loan agreement with its primary lender Merrill Lynch,
which expires on September 29, 2009. In October 2008, GE Capital assumed the
loan as successor to 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, 2008, there was no balance outstanding on the term loan and the
revolving loan. 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, 2008 and 2007, the Company
had foreign sales of approximately 46% and 41% of net sales, respectively. All
worldwide sales in fiscal 2008 and 2007, with the exception of $3,265 and $890,
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

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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, 2008 and 2007                                            | 27   
|Consolidated Statements of Stockholders Equity for the years ended
      September 30, 2008, 2007 and 2006 | 28   
|Consolidated Statements
      of Operations for the years ended September 30, 2008, 2007 and
    2006       | 29   
|Consolidated Statements of Comprehensive Income for the years ended
      September 30, 2008, 2007 and 2006 | 30   
|Consolidated Statements
      of Cash Flows for the years ended September 30, 2008, 2007 and
    2006       | 31   
|Notes
      to Consolidated Financial Statements                                                            | 32   

See pages 57-58 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 sheets of Williams Controls, Inc.
and subsidiaries as of September 30, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity, comprehensive income, and cash
flows for each of the years in the two-year period ended September 30, 2008. We
also have audited Williams Controls, Inc. and subsidiaries internal control
over financial reporting as of September 30, 2008, 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 consolidated financial 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 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 audits 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 audits 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 audits 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 audits also
included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits 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, 2008 and 2007, and the consolidated
results of its operations and its cash flows for each of the years in the
two-year period ended September 30, 2008, 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, 2008, 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 11, 2008

25

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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The Board of DirectorsWilliams
Controls, Inc.:

We have
audited the accompanying consolidated statements of operations, stockholders
equity, comprehensive income, and cash flows of Williams Controls, Inc. and
subsidiaries for the year 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 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. 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 audit provides a
reasonable basis for our opinion.

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

/s/ KPMG LLPPortland,
OregonDecember 12, 2006, except as to Note
11, 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                                                              |  | 2008          |   | 2007         
|Current
      Assets:                                               |  |               |   |              
|Cash and cash
      equivalents                                     |  |               | $ | 9,060        
|Short-term
    investments                                          |  |               |   | 263          
|Trade accounts receivable,
      less allowance of $47 and $33 in   |  |               |   |              
|2008 and 2007, respectively                                         |  |               |   | 10,438       
|Other accounts
      receivable                                     |  |               |   | 835          
|Inventories                                                         |  |               |   | 8,215        
|Deferred income
taxes                                               |  |               |   | 428          
|Prepaid expenses and other
      current assets                     |  |               |   | 301          
|Total current assets                                                |  |               |   | 29,540       
|Property, plant and
      equipment, net                            |  |               |   | 9,096        
|Deferred income taxes                                               |  |               |   | 1,446        
|Other assets,
    net                                               |  |               |   | 526          
|Total assets                                                        |  |               | $ | 40,608       
|                                                                   
|LIABILITIES AND STOCKHOLDERS EQUITY                                |  |               |   |              
|Current
      Liabilities:                                          |  |               |   |              
|Accounts payable                                                    |  |               | $ | 4,784        
|Accrued expenses                                                    |  |               |   | 5,224        
|Current portion of employee
      benefit obligations               |  |               |   | 285          
|Current portion of long-term
      debt                             |  |               |   |             
|Total current liabilities                                           |  |               |   | 10,293       
|Long-term
      Liabilities:                                        |  |               |   |              
|Employee benefit
      obligations                                  |  |               |   | 4,322        
|Other long-term
      liabilities                                   |  |               |   | 345          
|Commitments and contingencies                                       |  |               |   |              
|Stockholders Equity:                                               |  |               |   |              
|Preferred stock ($.01 par
      value, 50,000,000 authorized)       |  |               |   |              
|Series C (0 issued and outstanding at September 30, 2008            |  |               |   |              
|and 2007, respectively)                                             |  |               |   |             
|Common stock ($.01 par value,
      12,500,000 authorized;          |  |               |   |              
|7,534,642 and 7,495,482 issued and outstanding at                   |  |               |   |              
|September 30, 2008 and 2007, respectively)                          |  |               |   | 75           
|Additional paid-in
      capital                                    |  |               |   | 35,744       
|Accumulated deficit                                                 |  |               |   | (4,729       
|Treasury stock (21,700 shares
      at September 30, 2008 and 2007) |  |               |   | (377         
|Accumulated other
      comprehensive loss                          |  |               |   | (5,065       
|Total stockholders equity                                          |  |               |   | 25,648       
|Total liabilities and stockholders equity                          |  |               | $ | 40,608       

See accompanying notes to Consolidated
Financial Statements.

27

---

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

|                                    |  |                  |   |             |  |                 |    |              |  |        |        |               |  |        |               |         |   |  |   |      |   |  | Other |   |        |   |  | 
|----------------------------------- |  | ---------------- | - | ----------- |  | --------------- | -- | ------------ |  | ------ | ------ | ------------- |  | ------ | ------------- | ------- | - |  | - | ---- | - |  | ----- | - | ------ | - |  | 
|                                    |  |                  |   | Additional  |  |                 |    |              |  |        |        |               |  |        | Comprehensive |         |   |  |   |     
|                                    |  | **Common Stock** |   | **Paid-in** |  | **Accumulated** |    | **Treasury** |  | Income |        | Stockholders
|                                    |  | Shares           |   | **Amount**  |  | **Capital**     |    | Deficit      |  | Stock  |        | (Loss)        |  | Equity
|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 | ) |  | 
|Net income                          |  |                 |   |             |  |                 |   |              |  |        |       |               |  |        |               | 7,830   |   |  |   |     |   |  |       |   |       |   |  | 
|Exercise of stock options           |  | 37,198           |   |             |  |                 |   |              |  |        | 173    |               |  |        |               |        |   |  |   |     |   |  |       |   |       |   |  | 
|Common stock
      issuance         |  | 1,962            |   |             |  |                 |   |              |  |        | 26     |               |  |        |               |        |   |  |   |     |   |  |       |   |       |   |  | 
|Stock-based compensation            |  |                 |   |             |  |                 |   |              |  |        | 646    |               |  |        |               |        |   |  |   |     |   |  |       |   |       |   |  | 
|Adjustment to initially
      apply |  |                  |   |             |  |                 |    |              |  |        |        |               |  |        |               |         |   |  |   |      |   |  |       |   |        |   |  | 
|FIN 48, net of tax                  |  |                 |   |             |  |                 |   |              |  |        |       |               |  |        |               | (82     | ) |  |   |     |   |  |       |   |       |   |  | 
|Foreign
      currency translation  |  |                  |   |             |  |                 |    |              |  |        |        |               |  |        |               |         |   |  |   |      |   |  |       |   |        |   |  | 
|adjustment                          |  |                 |   |             |  |                 |   |              |  |        |       |               |  |        |               |        |   |  |   |     |   |  |       |   | 172    |   |  | 
|Change in pension
      liability   |  |                  |   |             |  |                 |    |              |  |        |        |               |  |        |               |         |   |  |   |      |   |  |       |   |        |   |  | 
|adjustment                          |  |                 |   |             |  |                 |   |              |  |        |       |               |  |        |               |        |   |  |   |     |   |  |       |   | (220   | ) |  | 
|Unrealized loss, net of tax         |  |                 |   |             |  |                 |   |              |  |        |       |               |  |        |               |        |   |  |   |     |   |  |       |   | (66    | ) |  | 
|Balance, September 30,
      2008   |  | 7,534,642        |   |             |  | $               | 75 |              |  | $      | 35,744 |               |  |        | $             | (4,729  | ) |  | $ | (377 | ) |  |       | $ | (5,065 | ) |  | 

See accompanying notes to Consolidated
Financial Statements.

28

---

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

|                                                                      |  | For the year ended September
      30,
|--------------------------------------------------------------------- |  | --------------------------------------
|                                                                      |  | 2008                                  
|Net
      sales                                                       |  | $                                     
|Cost of sales                                                         |  |                                       
|Gross
      profit                                                    |  |                                       
|Operating
      expenses                                              |  |                                       
|Research and
    development                                          |  |                                       
|Selling                                                               |  |                                       
|Administration                                                        |  |                                       
|Gain from settlement of
      environmental claims                    |  |                                       
|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,
|--------------------------------------------------------------------------------- |  | --------------------------------------
|                                                                                  |  | 2008                                  
|Net
      income                                                                  |  | $                                     
|Change in pension
      liability adjustment, net of tax of ($384), $455 and $346 |  |                                       
|in 2008, 2007 and 2006,
      respectively                                        |  |                                       
|Unrealized loss, net of tax of ($39) in 2008                                      |  |                                       
|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,
|--------------------------------------------------------------------------------------- |  | --------------------------------------
|                                                                                        |  | 2008                                  
|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                                                                   |  |                                       
|Stock based
    compensation                                                            |  |                                       
|Gain on settlement of
      liabilities                                                 |  |                                       
|Gain from stock settlement of
      environmental claims                                |  |                                       
|(Gain) loss from sale and
      disposal of fixed assets                                |  |                                       
|Gain on put/call option
      agreement                                                 |  |                                       
|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 sale of
      property, plant and equipment                               |  |                                       
|Net cash used in
      investing activities                                             |  |                                       
|Cash
      flows from financing activities:                                             |  |                                       
|Repayments of debt                                                                      |  |                                       
|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,
|                                                                                        |  | 2008                                  
|Supplemental disclosure of cash flow information:                                       |  |                                       
|Interest paid                                                                           |  | $                                     
|Income taxes paid,
    net                                                              |  |                                       
|Supplemental
      disclosure of non-cash investing and financing activities:           |  |                                       
|Pension liability
      adjustment                                                      |  | $                                     

See accompanying notes to Consolidated
Financial Statements.

31

---

Notes to Consolidated Financial
StatementsYears Ended September 30, 2008, 2007 and 2006(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);
Williams Controls Europe GmbH (Williams Controls Europe); and Williams
Controls India Private Limited (Williams Controls India).

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.

Concentration of Risk and Sales
by Customer:

For the
years ended September 30, 2008, 2007 and 2006, The Volvo Group accounted for
19%, 17% and 16%, Paccar, Inc. accounted for 11%, 14% and 17%, Freightliner, LLC
accounted for 9%, 13% and 17%, Navistar International Corporation accounted for
7%, 6% and 8% of net sales, respectively. Approximately 46%, 41% and 36% of net
sales in fiscal 2008, 2007 and 2006, respectively, were to customers outside of
the United States, primarily in Belgium, Canada, China, France, Korea, Mexico
and Sweden, and, to a lesser extent, in other European countries, South America,
Pacific Rim nations and Australia. At September 30, 2008 and 2007, The Volvo
Group represented 25% and 25%, Paccar, Inc. represented 9% and 7%, Freightliner,
LLC represented 8% and 6%, and Navistar International Corporation represented 8%
and 6%, of trade accounts receivable, respectively.

Realignment of
operations:

The
realignment of operations was essentially completed as of the date of the
Companys last fiscal year ended September 30, 2007.

During
the second quarter of fiscal year 2006, the Company began a plan (the Plan) to
realign its manufacturing operations as part of ongoing efforts to focus on its
core product competencies and improve its global competitiveness. The Plan was
substantially completed in fiscal 2007. The Plan consisted of outsourcing all of
the Companys die casting and machining operations from its Portland, Oregon
manufacturing facility to high-quality suppliers, primarily in Asia, and
relocating of the Companys assembly operations for the majority of its
pneumatic products from the Portland facility to its manufacturing facility in
Suzhou, China. In conjunction with the

32

---

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 included 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. No realignment expense was
recorded in fiscal year 2008. Following is a reconciliation of the changes in
the Companys liability accrual related to the employee termination benefits
during fiscal 2008 and the comparable period in fiscal 2007.

Year ended September
    30,
    
    
    2008
    
    2007
    
    2006Balance at beginning of period
    
    $
    86
    
    
    $
    226
    
    
    $
    Payments
    
    
    (86
    )
    
    
    (519
    )
    
    
    Additional accruals
    
    
    
    
    
    
    379
    
    
    
    226Balance at
      end of period
    
    $
    
    
    
    $
    86
    
    
    $
    226


Note 2. Significant Accounting
Policies

Cash and Cash
Equivalents:

Cash and
cash equivalents include highly liquid investments with original maturities of
three months or less.

Short-term
Investments:

Short-term investments consist of equity securities and are classified as
available-for-sale securities and recorded at fair value with any unrealized
gains and losses reported, net of tax, in other comprehensive income. The
carrying value of available-for-sale securities approximates fair value due to
their short maturities.

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 $47 and $33 at September 30, 2008, and
September 30, 2007, respectively.

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.

33

---

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. Maintenance and repairs are expensed as incurred.

Impairment of Long-Lived
Assets:

In
accordance with SFAS No. 144, Accounting for the Impairment 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.

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. Warranty
payments can vary significantly from year to year depending on the timing of the
settlement of warranty claims with various customers. Following is a
reconciliation of the changes in the Companys warranty liability for the years
ended September 30, 2008, 2007 and 2006.

Year ended September 30,
    
    2008
    
    2007
    
    2006Balance at beginning of period
    $
    1,712
    
    
    $
    1,720
    
    
    $
    1,656Payments
    
    (1,359
    )
    
    
    (1,076
    )
    
    
    (864
    )Warranty
      claims accrued
    
    767
    
    
    
    1,228
    
    
    
    1,112Adjustments and changes in estimates
    
    (401
    )
    
    
    (160
    )
    
    
    (184
    )Balance at end of period
    $
    719
    
    
    $
    1,712
    
    
    $
    1,720


During
fiscal 2008, the Company recorded a reduction of warranty liability of $324
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 a reduction in liability was
necessary. This reduction in the liability has been recorded as a reduction of
cost of sales in the accompanying condensed consolidated statement of
operations. Warranty payments in fiscal 2008 were higher than historical rates
as the Company settled and paid a significant number of claims dating back to
fiscal 2006 with one customer.

During
fiscal 2007, the Company recorded an adjustment for additional warranty
liability of $239 related to warranty claims with one customer. The Company
reviewed its assumptions for its warranty liability with this one customer,
which covers a period in excess of one year, and determined an additional
liability was required. This

34

---

additional liability has been recorded
in cost of sales in the accompanying condensed consolidated statement of
operations. At September 30, 2007, the Company also made an adjustment to
reverse the $400 warranty liability, as described below, as the warranty return
period had expired.

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.
Also 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.

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 the Company to accrue the cost of post-retirement benefit
obligations. The accruals are based on interest rates and the costs of health
care. Changes in interest rates and health care costs could impact
post-retirement expenses and future payments.

Earnings Per
Share:

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

35

---

Following is a reconciliation of
basic EPS and diluted EPS:

|                                      | Year Ended         |       | Year Ended        
|------------------------------------- | ------------------ | ----- | ------------------
|                                      | September 30, 2008 |       | September 30, 2007
|                                      |                    |       |                   
|                                      | Income             |       | Shares            
|Basic EPS                            | $                  | 7,830 |                   
|Effect of
      dilutive securities  |                    |       |                   
|Stock options                         |                    |      |                   
|Diluted EPS                          | $                  | 7,830 |                   

Year EndedSeptember 30, 2006Per ShareIncome
    
    Shares
    
    AmountBasic EPS 
    $
    9,549
    
    7,427,141
    
    
    $1.29Effect of
      dilutive securities Stock options
    
    
    
    200,964Diluted EPS 
    $
    9,549
    
    7,628,105
    
    
    $1.25


At
September 30, 2008, 2007 and 2006, the Company had options covering 111,658,
100,912 and 52,589 shares, respectively, which were not considered in the
diluted EPS calculation since they would have been antidilutive.

Share-Based
Compensation:

The
Company uses SFAS No. 123R, Share Based Payment, to account for its
share-based compensation plans. The Company uses the Black-Scholes option
pricing model to value its stock option grants under SFAS No. 123R. Share-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 share-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.

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 assesses
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, short-term investments, 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 5), accrued expenses, and short-term borrowings approximate
fair value due to the short-term nature of the instruments. Refer to Note 6
regarding the terms and conditions of the Companys long-term debt.

36

---

Recent Accounting Pronouncements:

In May
2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting Principles. This statement
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements presented
in conformity with generally accepted accounting principles in the United
States. This statement is effective 60 days following the approval of the
Securities and Exchange Commission. The Company does not expect the effects of
adopting this statement to be significant.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations. SFAS No. 141R changes the accounting for business combinations in
a number of areas including the treatment of contingent consideration,
preacquisition contingencies, transaction costs, in-process research and
development and restructuring costs. In addition, under SFAS No. 141R, changes
in an acquired entitys deferred tax assets and uncertain tax positions after
the measurement period will impact income tax expense. This statement will be
effective as of the beginning of an entitys first fiscal year that begins after
December 15, 2008. This statement, when adopted, will change the Companys
accounting treatment for business combinations on a prospective
basis.

In
February 2007, the 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
will adopt SFAS No. 159 during the first quarter of fiscal 2009. 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. 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. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years.

Note 3. Inventories

Inventories consist of the following
at September 30:

2008
    
    2007Raw material
    $
    5,578
    
    $
    7,057Work in
      process
    
    53
    
    
    66Finished goods
    
    2,584
    
    
    2,029$
    8,215
    
    $
    9,152


Note 4. Property, Plant and
Equipment

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

2008
    
    2007Land and land improvements
    $
    828
    
    
    $
    828Buildings
    
    4,009
    
    
    
    3,988Machinery and equipment
    
    11,889
    
    
    
    11,853Office
      furniture, computers & software
    
    4,689
    
    
    
    4,143Construction in progress
    
    675
    
    
    
    54422,090
    
    
    
    21,356Less accumulated depreciation
    
    (12,994
    )
    
    
    (12,403
    )$
    9,096
    
    
    $
    8,953


37

---

Depreciation expense for the years ended September 30, 2008, 2007 and
2006 was $1,763, $1,793 and $1,288, respectively.

Note 5. 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 and 2006, the Company was judicially
released from and reversed $889 and $744, respectively, of old accounts payable
resulting in a gain, which has been recorded in other (income) expense in the
accompanying consolidated statements of operations. No amounts were released and
reversed during fiscal year 2008. 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 an total of
$65 in fiscal 2011  2016.

Note 6. Debt

As of
September 30, 2008, the Company has paid off its entire term loan debt and has
no amounts outstanding under its revolving loan facility. The Companys
long-term debt consisted of $1,000 of term loan debt at September 30,
2007.

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. In October 2008, GE Capital assumed the loan as successor
to Merrill Lynch. The term loan has been repaid in its entirety. 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 for the
revolving loan facility are based on the election of the Company of either a
LIBOR rate or Prime rate. The LIBOR rate option is LIBOR plus 3.75% per annum.
The Prime rate option is at Prime plus 2.75% per annum. Fees under the loan
agreement include an unused line fee of 0.50% per annum on the unused portion of
the revolving credit facility.

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, 2008 the Company was in
compliance with all but one of its financial covenants and at September 30,
2007, the Company was in compliance with all but two of its financial covenants.
The Company has not obtained a waiver from GE Capital for fiscal 2008 as of the
filing of these financial statements and is continuing to work with GE Capital
to resolve this item. The Company did obtain a waiver from Merrill Lynch for
fiscal 2007 for the financial covenants it did not meet.

The Company had $8,000 available
under its revolving credit facility at both September 30, 2008 and 2007.

Note 7. 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
benefit expense.

38

---

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. 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.

SFAS No.
158 also 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.

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 Plan
|---------------------------------------------------- | ------------- | ----- | -----------
|September 30,                                        |               | 2008  |            
|Accumulated benefit obligation                       | $             | 4,695 |            
|Change in projected benefit obligation:              |               |       |            
|Benefit obligation at beginning of year              | $             | 4,894 |            
|Service cost                                         |               |      |            
|Interest cost                                        |               | 296   |            
|Actuarial (gain) loss                                |               | (153  | )          
|Curtailment                                          |               |      |            
|Benefits paid                                        |               | (342  | )          
|Benefit obligation at end of year                    | $             | 4,695 |            
|Change in plan assets:                               |               |       |            
|Fair value of plan assets at beginning of
      year | $             | 4,579 |            
|Actual
      return on plan assets                   |               | (383  | )          
|Employer contributions                               |               | 437   |            
|Benefits paid                                        |               | (342  | )          
|Fair value of plan assets at end of year             | $             | 4,291 |            
|Funded status at end of year                         | $             | (404  | )          

Subsequent to the August 31 measurement date, asset values have declined
as a result of recent volatility in the capital markets. The Company estimates
that the value of plan assets for both plans at November 30, 2008 decreased
approximately $2,750 when compared to the asset values at the measurement
date.

39

---

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

Salaried Plan
    
    Hourly Plan2008
    
    2007
    
    2008
    
    2007Discount rate
    6.97%
    
    6.25%
    
    6.97%
    
    6.25%Rate of
      compensation increase
    
    
    
    
    
    
    


The
amounts included in accumulated other comprehensive losses that have not yet
been recognized in net periodic benefit cost as of September 30, 2008 and 2007
consist of the following:

Salaried Plan
    
    Hourly Plan2008
    
    2007
    
    2008
    
    2007Actuarial loss
    $
    1,875
    
    $
    1,399
    
    $
    2,883
    
    $
    1,975Prior service
      cost
    
    
    
    
    
    
    
    49
    
    
    70$
    1,875
    
    $
    1,399
    
    $
    2,932
    
    $
    2,045


Amounts
in fiscal 2009 that will be amortized from accumulated other comprehensive loss
into net periodic benefit cost include the following:

Salaried Plan
    
    Hourly PlanActuarial loss
    
    $105
    
    
    
    $316Prior service
      cost
    
    
    
    
    
    16$105
    
    
    
    $332


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

|                                   | Salaried Plan |      | Hourly Plan
|---------------------------------- | ------------- | ---- | -----------
|Years ended September 30:          |               | 2008 |            
|Service cost                       | $             |     |            
|Interest cost                      |               | 296  |            
|Expected return on plan assets     |               | (310 | )          
|Amortization of prior service cost |               |     |            
|Curtailment                        |               |     |            
|Recognized net actuarial loss      |               | 64   |            
|Net periodic benefit cost          | $             | 50   |            

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

|                                     | Salaried Plan |  | Hourly Plan
|------------------------------------ | ------------- |  | -----------
|                                     | 2008          |  | 2007       
|Discount rate                        | 6.25%         |  | 5.85%      
|Expected return
      on plan assets | 6.75%         |  | 6.75%      
|Rate of compensation increase        |              |  |           

The
overall expected long-term rate of return assumptions for fiscal 2008 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. The weighted average rate was
developed based on those overall rates and the target asset allocation of the
plan.

40

---

Plan Assets:

The
Companys pension plan weighted-average asset allocations at September 30, 2008
and 2007, by asset category are as follows:

|                      | Salaried Plan |   | Hourly Plan
|--------------------- | ------------- | - | -----------
|                      |               |   |            
|                      | 2008          |   | 2007       
|Asset Category:       |               |   |            
|Equity securities     | 45            | % |            
|Debt
      securities | 49            | % |            
|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 $612 in expense in fiscal 2009 related to its
pension plans and make payments of $183 in fiscal 2009.

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 PaymentsYear ending:
    
    Salaried Plan
    
    Hourly Plan2009
    
    $
    340
    
    
    $
    5302010
    
    
    350
    
    
    
    5102011
    
    
    360
    
    
    
    5402012
    
    
    350
    
    
    
    5302013
    
    
    350
    
    
    
    540Years 2014-2018
    
    
    1,750
    
    
    
    2,880


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,
    
    2008
    
    2007Change in benefit obligation:Benefit obligation at beginning of year
    $
    3,988
    
    
    $
    3,942Service cost
    
    5
    
    
    
    6Interest cost
    
    237
    
    
    
    221Actuarial (gain) loss
    
    (792
    )
    
    
    84Benefits paid
    
    (283
    )
    
    
    (265
    )Benefit obligation at end of year
    $
    3,155
    
    
    $
    3,988Change in plan assets:Fair value of plan assets at beginning of
      year
    $
    
    
    
    $
    Employer contributions
    
    283
    
    
    
    265Benefits paid
    
    (283
    )
    
    
    (265
    )Fair
      value of plan assets at end of year
    $
    
    
    
    $
    Funded status at end of year
    $
    (3,155
    )
    
    $
    (3,988
    )


41

---

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

2008
    
    2007Discount rate
    6.80%
    
    6.17%Rate of
      compensation increase
    
    
    


The
amounts included in accumulated other comprehensive losses that have not yet
been recognized in net periodic benefit cost as of September 30, 2008 and 2007
consist of the following:

2008
    
    2007Actuarial loss
    $
    650
    
    
    $
    1,518Prior service
      credit
    
    (675
    )
    
    
    (805
    )Transition obligation
    
    101
    
    
    
    121Actuarial
      loss
    $
    76
    
    
    $
    834


Amounts
in fiscal 2009 that will be amortized from accumulated other comprehensive loss
into net periodic benefit cost include the following:

Actuarial loss
    $
    23Prior service
      credit
    
    (131
    )Transition obligation
    
    20$
    (88
    )


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

Year ended September 30:
    
    2008
    
    2007
    
    2006Service cost
    $
    6
    
    
    $
    6
    
    
    $
    7Interest cost
    
    237
    
    
    
    220
    
    
    
    199Amortization
    
    (35
    )
    
    
    (22
    )
    
    
    (29
    )Net
      periodic post retirement benefit cost
    $
    208
    
    
    $
    204
    
    
    $
    177Discount rate assumption
    
    6.17
    %
    
    
    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:

Year ending:
    Benefit Payments2009
    $
    2852010
    
    2752011
    
    2782012
    
    2782013
    
    279Years 2014-2018
    
    1,274


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 2017
and remaining at 5.0% thereafter.

If the assumed medical costs trends
were increased by 1%, the benefit obligation as of September 30, 2008 would
increase by $259, and the aggregate of the services and interest cost components
of the net post retirement benefit cost would be increased by $23. If the
assumed medical costs trends were decreased by 1%, the benefit obligation as of
September 30, 2008 would decrease by $225, and the aggregate of the services and
interest cost components of the net post retirement benefit cost would be
decreased by $19.

42

---

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 2008, 2007 and
2006 were $276, $230 and $213, respectively.

Note 8. Income Tax
Expense

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

2008
    
    2007
    
    2006Current
    $
    3,455
    
    $
    3,669
    
    $
    2,552Deferred
    
    495
    
    
    638
    
    
    2,157$
    3,950
    
    $
    4,307
    
    $
    4,709


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
    
    2008
    
    2007
    
    2006Statutory federal income tax rate
    34.0
    %
    
    34.0
    %
    
    34.0
    %State
      taxes, net of federal income tax benefit
    2.6
    
    
    2.8
    
    
    2.1Reduction 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
    (3.0
    )
    
    (0.4
    )
    
    0.3Effect
      of change in valuation allowance
    (0.5
    )
    
    (9.8
    )
    
    (0.4
    )Stock-based compensation
    1.1
    
    
    0.6
    
    
    0.7Section 199 deduction
    (1.5
    )
    
    (0.9
    )
    
    (0.8
    )Extraterritorial income exclusion
    
    
    
    (0.8
    )
    
    (1.3
    )Other
    0.8
    
    
    0.1
    
    
    (1.6
    )33.5
    %
    
    35.2
    %
    
    33.0
    %


At
September 30, 2008, the Company had recorded an income tax payable of $133,
which is included in accrued expenses in the accompanying consolidated balance
sheets.

43

---

The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at September 30, 2008 and 2007
are as follows:

2008
    
    2007Deferred tax assets:Inventories
    $
    147
    
    
    $
    201Warranty liability
    
    265
    
    
    
    630Accrual for
      compensated absences
    
    149
    
    
    
    122Stock based compensation
    
    256
    
    
    
    156Accrual for
      retiree medical benefits
    
    1,087
    
    
    
    1,393Loss from investment in affiliate (Ajay Sports, Inc.)
    
    3,845
    
    
    
    3,845Tax gain on
      sale/leaseback
    
    648
    
    
    
    648Accrued environmental obligations
    
    376
    
    
    
    385Accrued other liabilities
    
    293
    
    
    
    235Pension plan comprehensive loss adjustment
    
    501
    
    
    
    State net
      operating loss carryforwards
    
    92
    
    
    
    133Other
    
    56
    
    
    
    12Total deferred
      tax assets
    
    7,715
    
    
    
    7,760Less valuation allowance
    
    (5,216
    )
    
    
    (5,433
    )Deferred tax
      assets, net of valuation allowance
    
    2,499
    
    
    
    2,327Deferred tax liabilities:Plant and
      equipment
    
    625
    
    
    
    368Pension plan comprehensive loss adjustment
    
    
    
    
    
    12Net deferred
      income tax assets
    $
    1,874
    
    
    $
    1,947Current deferred income tax assets
    $
    1,316
    
    
    $
    1,617Long-term
      deferred income tax assets
    
    6,412
    
    
    
    6,151Long-term deferred income tax liabilities
    
    (638
    )
    
    
    (388
    )Valuation
      allowance
    
    (5,216
    )
    
    
    (5,433
    )$
    1,874
    
    
    $
    1,947


At
September 30, 2008, the Company has approximately $2,191 of state net operating
loss carry-forwards, which are available to the Company in certain state tax
jurisdictions and begin to expire in 2016. These state net operating loss
carry-forwards have a full valuation allowance against them at September 30,
2008.

In June
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48). FIN 48
establishes a single model to address accounting for uncertain tax positions.
FIN 48 clarifies the accounting for income taxes by prescribing a minimum
recognition threshold a tax position is required to meet before being recognized
in the financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition.

The
Company adopted the provisions of FIN 48 on October 1, 2007. As of the date of
adoption, the Company had unrecognized tax benefits of $109, of which $72 will
favorably affect the effective tax rate, if recognized. The adoption of FIN 48
resulted in a decrease of $82 to retained earnings as a cumulative effect
adjustment to stockholders equity. The amount of interest and penalties related
to the unrecognized tax benefits as of the date of adoption was $14. The Company
will recognize interest and penalties related to unrecognized tax benefits as a
component of income tax expense. The Company believes that it is reasonably
possible that unrecognized tax benefits could decrease by $23 within the 12
months of this reporting date.

44

---

Following is a reconciliation of the
Companys unrecognized tax benefits:

Balance at October 1, 2007
    $
    109Additions based on tax positions related to the current
      year
    
    6Additions based on tax positions of prior years
    
    63Settlements
    
    (74
    )Balance at September 30, 2008
    $
    104


During
the fourth quarter of fiscal 2008, the Company settled with the State of Oregon
on the outstanding examination issues. The settlement did not have a material
adverse effect on the Companys results of operations. The settlement liability
was paid in October 2008. The Company is not currently under examination in any
other states or foreign jurisdictions.

The
Company is subject to income taxes in the United States and foreign
jurisdictions. The Company is no longer subject to U.S. federal, state or
foreign income tax examinations for fiscal years ended before September 30,
2005, September 30, 2004 and September 30, 2005, respectively. However, to the
extent allowed by law, the tax authorities may have the right to examine prior
periods where net operating losses or tax credits were generated and carried
forward, and make adjustments up to the amount of the net operating loss or
credit carryforward amount.

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 had positive earnings, and calendar 2008. After the
two-year exemption period, the Companys subsidiary in China will be entitled to
approximately a 50% exemption for calendar 2009 through 2011.

Note 9. Commitments and
Contingencies

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

The soil
and groundwater at the Companys Portland, Oregon facility contains certain
contaminants, which were deposited from approximately 1968 through 1995. Some of
this contamination has migrated offsite to neighboring properties. The Company
has retained an environmental consulting firm to investigate the extent of the
contamination and to determine what remediation will be required and the
associated costs. During fiscal 2004, the Company entered into the Oregon
Department of Environmental Qualitys voluntary clean-up program 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 costs estimates determined by the Company with the help of an
environmental consulting firm. As of September 30, 2008, the total liability
recorded is $1,021 and is recorded in accrued expenses in the accompanying
condensed consolidated balance sheet. The Company asserted and settled a
contractual indemnity claim against Dana Corporation (Dana), from which it
acquired the property, and contribution claims against the other prior owner of
the property as well as businesses previously located on the property (including
Blount, Inc. (Blount) and Rosan, Inc. (Rosan)) under the Federal Superfund
Act and

45

---

the Oregon Cleanup Law. During 2008,
the Company entered into a settlement agreement with Dana, Blount and Rosan
under which it received total cash payments from Dana, Blount and Rosan of $735,
and shares of Dana stock equal to approximately $337 at the time of settlement,
and assumed the full obligation to, and risks associated with, completing the
remediation. The Company recorded the shares received as available-for-sale
securities in short-term investments in the accompanying condensed consolidated
balance sheets. As of September 30, 2008, the Company has recorded a total gain
of $1,072, which was recorded in operating expenses in the consolidated
financial statements for the receipt of the cash and stock.

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). The
complaint seeks an unspecified amount of damages on behalf of the class. During
the second quarter of fiscal 2007, the Oklahoma district court granted the
plaintiffs class action status. The Company and Ford appealed the District
Courts class certification ruling to the Court of Civil Appeals of the State of
Oklahoma (Appeals Court) and during the second quarter of fiscal 2008, the
Appeals Court, in a 3-to-0 decision, reversed the District Courts ruling and
decertified the nationwide class. As permitted under Oklahoma law, the
plaintiffs filed for a re-hearing by the Appeals Court and during the third
quarter of fiscal 2008, the Appeals Court denied the motion for re-hearing. The
plaintiffs have since appealed the Court of Civil Appeals decision to the
Oklahoma Supreme Court which has not taken action yet. The Company continues to
believe the claim to be without merit and intends to continue to vigorously
defend against this action. Although the Appeals Court decision is favorable to
the Company, there can be no assurance that the ultimate 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 may incur future
litigation expenses in defending this litigation.

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,

2009
    $
    5422010
    
    4802011
    
    4652012
    
    352Total
    $
    1,839


Rent
expense under operating leases was $707, $436 and $324 for the years ended
September 30, 2008, 2007 and 2006, respectively.

Note 10. Share-Based
Compensation

The
Company currently has two qualified stock option plans. The Restated 1993 Stock
Option Plan (the 1993 Plan) reserves an aggregate of 870,000 shares of the
Companys authorized common stock for the issuance of stock options, which
includes the 120,000 share increase in authorized shares approved by the
stockholders at the February 27, 2008 Annual Meeting of Stockholders. These
shares 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, 2008 and 2007, the Company had 123,867 and
55,471 shares, respectively, available for future grants under the 1993 Plan.
The non-employee Director Plan (the 1995 Plan) reserves an aggregate of 86,666
shares of the Companys common stock for issuance of stock options, which
includes the 20,000 share increase in authorized shares approved by the
stockholders at the February 27, 2008 Annual Meeting of Stockholders. These
shares 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 Meeting of Stockholders 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, 2008 and
2007 there were 28,354 and 16,684 shares, respectively, available for grant
under the 1995 Plan.

46

---

As of
September 30, 2008, there was $1,985 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.

The
Companys share-based compensation expenses were recorded in the following
expense categories for the years ended September 30, 2008, 2007 and
2006:

2008
    
    2007
    
    2006Cost of sales
    $
    111
    
    $
    74
    
    $
    71Research and
      development
    
    73
    
    
    30
    
    
    27Selling
    
    76
    
    
    62
    
    
    49Administration
    
    412
    
    
    371
    
    
    305Total share-based compensation expense
    $
    672
    
    $
    537
    
    $
    452Total
      share-based compensation expense (net of tax)
    $
    572
    
    $
    454
    
    $
    402


As part
of the employment agreement with Patrick W. Cavanagh, President and Chief
Executive Officer, the Company has the option to pay Mr. Cavanagh up to 7% of
his annual base salary in shares of common stock of the Company and exercised
that option for each of fiscal years 2008, 2007 and 2006. In the third quarter
of fiscal 2008, the Company elected to pay 7% of Mr. Cavanaghs fiscal 2008
salary in common stock of the Company by issuing him 1,364 shares of restricted
common stock at $13.34 per share. 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 by issuing him 989 shares of restricted common stock at $16.98
per share. During the third quarter of fiscal 2006, the Company paid 7% of Mr.
Cavanaghs fiscal 2006 salary in common stock of the Company by issuing him
1,306 shares of restricted common stock at $12.86 per share.

Also
during the third quarter of fiscal 2008, 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 by issuing them 374 and 224 shares, respectively, of restricted
common stock at $13.34 per share. 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 by issuing them 294 and 176
shares, respectively, of restricted common stock at $16.98 per share. During the
third quarter of fiscal 2006, the Company paid $5 of Mr. Bundays salary in
common stock of the Company by issuing him 388 shares of restricted common stock
at $12.86 per share. All of the payments of base salary in stock to Mr. Bunday
and Mr. Koenen were pursuant to each of their respective employment
agreements.

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.

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, 2008,
2007 and 2006.

2008
    
    2007
    
    2006Risk-free interest rate
    3.55%
    
    4.46%
    
    4.57%Expected
      dividend yield
    0%
    
    0%
    
    0%Expected term
    6.4 years
    
    6.4 years
    
    6.3 yearsExpected
      volatility
    68%
    
    80%
    
    88%


Using the
Black-Scholes methodology, the total value of options granted during the years
ended September 30, 2008, 2007 and 2006, was $712, $1,526 and $488,
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, 2008, 2007 and 2006 was $8.79, $12.40 and $8.22 per
share, respectively.

47

---

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. Expected volatilities are based on the historical volatility of the
Companys common stock and fluctuate based on the changes in price of the
Companys common stock looking back over an equivalent period as the expected
term of the new option grant.

The following table summarizes stock
options outstanding as of September 30, 2008.

Weighted AverageShares
    
    Exercise PriceOutstanding at September 30, 2007
    622,785
    
    
    
    $8.40Granted
    80,996
    
    
    
    13.65Exercised
    (37,198
    )
    
    
    4.66Forfeited
    (21,062
    )
    
    
    11.63Outstanding at September 30, 2008
    645,521
    
    
    
    $9.17Exercisable at
      September 30, 2008
    362,833
    
    
    
    $6.80


At
September 30, 2008, the weighted average remaining contractual term of options
outstanding and options exercisable was 6.6 years and 5.5 years,
respectively.

The
aggregate intrinsic value of options outstanding and options exercisable at
September 30, 2008 was $2,998 and $2,345, 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, 2008, 2007 and 2006 was
$421, $640 and $423, respectively. Cash received from the exercise of stock
options for the years ended September 30, 2008, 2007 and 2006 was $173, $260 and
$216, respectively.

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

Shares Available
    
    Shares SubjectFor Grant
    
    To Options
    
    Option PricesOutstanding 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
    
    18.05Newly
      authorized
    120,000
    
    
    Granted
    (71,000
    )
    
    71,000
    
    
    
    13.17
    
    15.46Exercised
    
    
    
    (37,198
    )
    
    
    3.96
    
    14.03Forfeited
    19,396
    
    
    (19,396
    )
    
    
    3.96
    
    17.25Outstanding at September 30, 2008
    123,867
    
    
    588,042
    
    
    $
    3.96
    
    18.05


48

---

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

Shares Available
    
    Shares SubjectFor Grant
    
    To Options
    
    Option PricesOutstanding 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
    
    
    
    17.69Forfeited
    
    1,666
    
    
    (1,666
    )
    
    
    15.94Outstanding at September 30, 2007
    
    16,684
    
    
    49,149
    
    
    
    3.96  17.69Newly
      authorized
    
    20,000
    
    
    Granted
    
    (9,996
    )
    
    9,996
    
    
    
    15.25Forfeited
    
    1,666
    
    
    (1,666
    )
    
    
    14.64Outstanding at September 30, 2008
    
    28,354
    
    
    57,479
    
    
    $
    3.96  17.69


The
following table summarizes information about stock options under both plans
outstanding at September 30, 2008:

|                  |                    | **Options Outstanding** |  | Options Exercisable  
|----------------- | ------------------ | ----------------------- |  | ---------------------
|                  |                    | Number                  |  | Weighted Average     
|Range of Exercise |                    | Outstanding at          |  | Remaining Contractual
|Prices            |                    | September 30, 2008      |  | Life  Years         
|$                 | 3.96    4.68      |                         |  | 219,491              
|                  | 7.20 
      13.57 |                         |  | 287,738              
|                  | 14.03  18.05      |                         |  | 138,292              
|$                 | 3.96  18.05       |                         |  | 645,521              

At
September 30, 2007 and 2006, 316,655 and 271,503 options, respectively, were
exercisable at weighted average exercise prices of $6.01 and $5.76 per share,
respectively.

49

---

Note 11. Geographic
Information

The
Company accounts for its geographic information 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,
    
    2008
    
    2007
    
    2006North America (NAFTA):United States
    $
    35,240
    
    $
    40,545
    
    $
    47,473Canada
    
    3,700
    
    
    5,280
    
    
    7,101Mexico
    
    2,817
    
    
    3,351
    
    
    3,018$
    41,757
    
    $
    49,176
    
    $
    57,592Europe:Belgium
    $
    5,544
    
    $
    5,340
    
    $
    5,078France
    
    3,256
    
    
    2,694
    
    
    1,456Sweden
    
    4,038
    
    
    4,219
    
    
    3,949Other
    
    1,924
    
    
    1,226
    
    
    1,196$
    14,762
    
    $
    13,479
    
    $
    11,679Asia:Korea
    $
    3,800
    
    $
    2,743
    
    $
    2,828China
    
    3,262
    
    
    1,270
    
    
    648Other
    
    1,539
    
    
    1,691
    
    
    1,468$
    8,601
    
    $
    5,704
    
    $
    4,944Other:
    
    661
    
    
    565
    
    
    419Consolidated net sales
    $
    65,781
    
    $
    68,924
    
    $
    74,634Foreign sales
    $
    30,541
    
    $
    28,379
    
    $
    27,161United
      States sales
    
    35,240
    
    
    40,545
    
    
    47,473Consolidated net sales
    $
    65,781
    
    $
    68,924
    
    $
    74,634


50

---

During
the years ended September 30, 2008, 2007 and 2006, the Company operated in two
geographic reportable segments as shown in the table below.

Year ended September 30,
    
    2008
    
    2007
    
    2006Revenue  External Customers:United States
    $
    62,516
    
    
    $
    68,034
    
    
    $
    74,379China
    
    3,265
    
    
    
    890
    
    
    
    255$
    65,781
    
    
    $
    68,924
    
    
    $
    74,634Revenue  Intersegments:United States
    $
    1,472
    
    
    $
    3,288
    
    
    $
    2,601China
    
    12,177
    
    
    
    9,452
    
    
    
    4,219Other
    
    626
    
    
    
    512
    
    
    
    341Eliminations
    
    (14,275
    )
    
    
    (13,252
    )
    
    
    (7,161
    )$
    
    
    
    $
    
    
    
    $
    Income before income taxes:United States
    $
    10,642
    
    
    $
    12,059
    
    
    $
    14,584China
    
    1,085
    
    
    
    143
    
    
    
    (333
    )Other
    
    53
    
    
    
    42
    
    
    
    7$
    11,780
    
    
    $
    12,244
    
    
    $
    14,258Total assets:United
      States
    $
    34,579
    
    
    $
    27,945China
    
    5,887
    
    
    
    4,242Other
    
    142
    
    
    
    116$
    40,608
    
    
    $
    32,303Long-lived assets:United States
    $
    8,257
    
    
    $
    8,141China
    
    1,316
    
    
    
    1,391Other
    
    48
    
    
    
    44$
    9,621
    
    
    $
    9,576


Note 12. Employment Agreements

In
January 2008, the Company entered into an employment agreement with Scott J.
Thiel, Vice President of Engineering and Development. The contract specifies an
initial base salary per year, plus a bonus based on parameters established by
the board of directors. The agreement also provides for a one-year severance
payment under certain circumstances in the event the Company terminates his
employment.

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.

51

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Note 13. Stock Repurchase
Program

In October 2008, the Companys Board
of Directors authorized the purchase, from time to time, of up to $5,000 of
shares of the Companys common stock. Repurchases may be made in the open market
or through block trades, in compliance with Securities and Exchange Commission
guidelines, subject to market conditions, applicable legal requirements and
other factors. The Company has no obligation to repurchase shares under the
repurchase program and the timing, actual number and price of shares to be
purchased will depend on the performance of the Companys stock price, general
market conditions, and various other factors within the discretion of
management.

Note 14. Quarterly Data
(unaudited)

The
following table summarizes the Companys quarterly financial data for the past
two fiscal years ended September 30, 2008 and 2007.

First
    
    Second
    
    Third
    
    Fourth2008
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    AnnualNet
      sales
    $
    14,972
    
    $
    16,484
    
    $
    17,137
    
    $
    17,188
    
    $
    65,781Cost of
      sales
    
    10,085
    
    
    10,858
    
    
    10,965
    
    
    11,052
    
    
    42,960Gross
      profit
    $
    4,887
    
    $
    5,626
    
    $
    6,172
    
    $
    6,136
    
    $
    22,821Operating
      expenses
    $
    3,089
    
    $
    2,004
    
    $
    3,010
    
    $
    3,067
    
    $
    11,170Net income
    $
    1,156
    
    $
    2,480
    
    $
    2,197
    
    $
    1,997
    
    $
    7,830Earnings per common shareBasic
    $
    0.15
    
    $
    0.33
    
    $
    0.29
    
    $
    0.27
    
    $
    1.04Diluted
    $
    0.15
    
    $
    0.32
    
    $
    0.28
    
    $
    0.26
    
    $
    1.01First
    
    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
    
    $
    1.03


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.

52

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Design and Evaluation of Internal
Controls Over Financial Reporting

Report of Management

Our
management is responsible for establishing and maintaining adequate internal
control 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 control over financial reporting as of September
30, 2008. 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, 2008, the Companys internal control over financial reporting are
effective based on those criteria.

There has
been no change in the Companys internal control over financial reporting that
occurred during our fiscal quarter ended September 30, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

Moss
Adams LLP, an independent registered public accounting firm, has audited the
Companys consolidated financial statements and the effectiveness of
internal control over financial reporting as of September 30, 2008 as stated in
their report which is included herein.

ITEM 9B. OTHER
INFORMATION

Not applicable.

53

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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 2009 Annual Meeting
of Stockholders (the 2008 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, 2008.

ITEM 11. EXECUTIVE
COMPENSATION

The
section of our 2008 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 2008 Proxy Statement entitled Securities Ownership of Certain
Beneficial Owners and Management is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The
section of our 2008 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 2008 Proxy Statement entitled Independent Registered Public
Accounting Firm is incorporated herein by reference.

54

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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 57.

55

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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 11,
      2008 | 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 11,
      2008 | By |  | / s / R. EUGENE GOODSON                                 
|----- |  | ----------------------- | -- |  | --------------------------------------------------------
|      |  |                         |    |  | R. Eugene
      Goodson, Chairman of the Board          
|     
|Date: |  | December 11,
      2008 | By |  | / s / PATRICK W. CAVANAGH                               
|      |  |                         |    |  | Patrick W.
      Cavanagh, Director, President and Chief
|      |  |                         |    |  | Executive
      Officer                                 
|     
|Date: |  | December 11,
      2008 | By |  | / s / DENNIS E. BUNDAY                                  
|      |  |                         |    |  | Dennis E.
      Bunday, Executive Vice President, Chief 
|      |  |                         |    |  | Financial
      Officer and Principal Accounting Officer
|     
|Date: |  | December 11,
      2008 | By |  | / s / H. SAMUEL
      GREENAWALT                        
|      |  |                         |    |  | H. Samuel
      Greenawalt, Director                    
|     
|Date: |  | December 11,
      2008 | By |  | / s / DOUGLAS E. HAILEY                                 
|      |  |                         |    |  | Douglas E.
      Hailey, Director                       
|     
|Date: |  | December 11,
      2008 | By |  | / s / CARLOS P. SALAS                                   
|      |  |                         |    |  | Carlos P.
      Salas, Director                         
|     
|Date: |  | December 11,
      2008 | By |  | / s / PETER E. SALAS                                    
|      |  |                         |    |  | Peter E.
      Salas, Director                          
|     
|Date: |  | December 11,
      2008 | By |  | / s / DONN J. VIOLA                                     
|      |  |                         |    |  | Donn J.
      Viola, Director                           

56

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WILLIAMS CONTROLS,
INC.Exhibit
Index

|**Exhibit** |  |                                                                                                                                                                                                                                                                                                                                                        
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**Number**  |  | **Description**                                                                                                                                                                                                                                                                                                                                        
|2.01        |  | Asset Purchase Agreement, dated as
      of September 30, 2003, by and among the Company, Teleflex Incorporated and
      Teleflex Automotive Incorporated *(Incorporated
      by reference to Exhibit 2.1 to the Registrants current report on Form 8-K
      filed on December 9, 2003)*.                                                          
|           
|3.01(a)     |  | Certificate of Incorporation of
      the Registrant, as amended.(Incorporated by reference to Exhibit 3.01 (a) to the Registrants
      quarterly report on Form 10-Q for the quarter ended December 31,
      2006)                                                                                                                                 
|           
|3.01(b)     |  | Certificate of Amendment to
      Certificate of Incorporation of the Registrant, dated February 27, 1995.
      *(Incorporated by reference to Exhibit 3.01 (b) to the Registrants
      quarterly report on Form 10-Q for the quarter ended December 31,
      2006)*                                                                               
|           
|3.01(c)     |  | Certificate of Amendment to
      Certificate of Incorporation of the Registrant, dated October 28, 2004.
      *(Incorporated by reference to Exhibit 3.01 (c) to the Registrants
      quarterly report on Form 10-Q for the quarter ended December 31,
      2006)*                                                                                
|           
|3.01(d)     |  | Certificate of Amendment to
      Certificate of Incorporation of the Registrant, dated February 22, 2005.
      *(Incorporated by reference to Exhibit 3.01 (d) to the Registrants
      quarterly report on Form 10-Q for the quarter ended December 31,
      2006)*                                                                               
|           
|3.01(e)     |  | Certificate of Amendment to
      Certificate of Incorporation of the Registrant, dated March 2, 2006.
      *(Incorporated by reference to Exhibit 3.01 (e) to the Registrants
      quarterly report on Form 10-Q for the quarter ended December 31,
      2006)*                                                                                   
|           
|3.02        |  | Restated By-Laws of the Registrant
      as amended July 1, 2002.(Incorporated
      by reference to Exhibit 3.6 to the Registrants quarterly report on Form
      10-Q, Commission File No. 000-18083, for the quarter ended June 30,
      2002)                                                                                                    
|           
|4.01        |  | Specimen Unit Certificate
      (including Specimen Certificate for shares of Common Stock and Specimen
      Certificate for the Warrants). (Incorporated by
      reference to Exhibits 1.1 and 1.2 to the Registrants Registration
      Statement on Form 8-A, Commission File No. 000-18083, filed with the
      Commission on November 1, 1989)
|           
|4.07        |  | Certificate to Provide for the
      Designation, Preferences, Rights, Qualifications, Limitations or
      Restrictions Thereof, of the Series C Preferred Stock, 15% Redeemable
      Non-Convertible Series *(Incorporated by reference to the Registrants
      report on Form 8-K, filed on September 29, 2004)*                                 
|           
|10.01(a)    |  | Form of Indemnification Agreement
      for H. Samuel Greenawalt.(Incorporated
      by reference to Exhibit 10.1(c) to the Registrants annual report on Form
      10-K for the fiscal year ended September 30, 1993, Commission File No.
      0-18083, filed with the Commission on November 1, 1989)                                              
|           
|10.01(b)    |  | Form of Indemnification Agreement
      for Douglas E. Hailey(Incorporated by
      reference to Exhibit 10.1(a) to the Registrants quarterly report on Form
      10-Q for the quarter ended December 31, 2001)                                                                                                                                      
|           
|10.02       |  | The Companys 1995 Stock Option
      Plan for Non-Employee Directors.(Incorporated by reference to Exhibit 10.3 to the Registrants
      quarterly report on Form 10-Q for the quarter ended March 31, 1995,
      Commission File No. 0-18083, filed with the Commission on November 1,
      1989)                                                 
|           
|10.03       |  | The
      Registrants 1993 Stock Option Plan as amended to date.(Incorporated by reference to Exhibit 10.4(b) to the
      Registrants annual report on Form 10-k for the fiscal year ended
      September 30,1998, Commission File No. 0-18083, filed with the Commission
      on November 1, 1989)                                               

57

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|**Exhibit** |  |                                                                                                                                                                                                                                                                                                                                                        
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**Number**  |  | **Description**                                                                                                                                                                                                                                                                                                                                        
|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
      *(Incorporated by reference to the Registrants report on Form 10-K,
      filed on December 14, 2007)*                                                                                                                                   
|           
|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(Incorporated by reference to the Registrants report on Form 10-K,
      filed on December 14, 2007)                                                                                                                                                             
|           
|10.16       |  | Employment Agreement with Gary A.
      Hafner, Vice President of Manufacturing(Incorporated by reference to the Registrants report on Form 10-K,
      filed on December 14, 2007)                                                                                                                                                                   
|           
|10.17       |  | Employment Agreement with Scott J.
      Thiel, Vice President of Engineering and Development(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                                                                                                                                                                                                  

58

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