UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K
               [ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                                     OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: September 30, 1999

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from ______to_____

                         Commission file number 0-18083

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

          Delaware                                        84-1099587
-------------------------------                ---------------------------------
(State or other jurisdiction of                (I.R.S. Employer incorporation or
         organization)                                   Identification No.)


              14100 SW 72nd Avenue
                Portland, Oregon                               97224
     ---------------------------------------                 ----------
     (Address of principal executive office)                 (zip code)

               Registrant's telephone number, including area code:

                                 (503) 684-8600

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock ($.01 par value)

Indicate by check mark 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.
                                (1) Yes X    No
                                       ---     ---

                                (2) Yes X    No
                                       ---     ---

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

As of November 30, 1999, 19,783,528, shares of Common Stock were outstanding and
the  aggregate  market value of the shares  (based upon the closing price of the
shares on the  NASDAQ  National  market)  of  Williams  Controls,  Inc.  held by
nonaffiliates was approximately $26,956,328.

                      Documents Incorporated by Reference

Portions  of the  definitive  proxy  statement  for the 1999  Annual  Meeting of
Stockholders  to be filed not later than  January 28, 2000 are  incorporated  by
reference in Part III hereof.

<PAGE>



                             Williams Controls, Inc.
                             Index to 1999 Form 10-K




                                                                           Page
   Part I                                                                  ----
      Item 1.   Description of Business                                     2-7
      Item 2.   Properties                                                   7
      Item 3.   Legal Proceedings                                            8
      Item 4.   Submission of Matters to a Vote of Security Holders          8


   Part II
      Item 5.   Market for Registrant's Common Equity and Related
                Stockholder Matters                                          9
      Item 6.   Selected Financial Data                                     10
      Item 7.   Management's Discussion and Analysis of Financial
                Condition and Results of Operations                        11-17
      Item 8.   Financial Statements and Supplementary Data                18-53
      Item 9.   Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                         54


   Part III
      Item 10.  Directors and Executive Officers of the Registrant          54
      Item 11.  Executive Compensation                                      54
      Item 12.  Security Ownership of Certain Beneficial Owners and
                Management                                                  54
      Item 13.  Certain Relationships and Related Transactions              54


   Part IV
      Item 14.  Exhibits, Financial Statement Schedules and Reports
                on Form 8-K                                                 54


   Signatures                                                               55




<PAGE>

                             WILLIAMS CONTROLS, INC.

                                    Form 10-K

                                     Part I


Cautionary Statement: This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, those statements relating to development
of new products, the financial condition of the Company, the ability to increase
distribution  of the Company's  products,  integration of businesses the Company
acquires, and disposition of any current business of the Company,  including its
Agriculture  Equipment  business  unit.  These  forward-looking  statements  are
subject to the business and economic  risks faced by the Company.  The Company's
actual  results  could  differ   materially  from  those  anticipated  in  these
forward-looking  statements as a result of the factors described above and other
factors described elsewhere in this report.


Item 1. Description of Business (Dollars in thousands)
-------------------------------

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


General
-------

We are a  Delaware  corporation  formed in 1988.  The  principal  company in our
vehicle component segment,  our primary business segment,  was founded by Norman
C.  Williams  in 1939  and  acquired  by the  Company  in  1988.  Our  operating
subsidiaries  are divided into three business units (one of which is reported as
a discontinued operation).

Vehicle  Components - Our vehicle  component  product  lines  primarily  include
electronic  throttle  control systems,  exhaust brakes and pneumatic,  hydraulic
controls and plastic injection molded products  including  automotive  taillight
systems.  These products are used in trucks,  utility and off-highway equipment,
transit buses and underground  mining machines.  We estimate that we have over a
65%  market  share of  electronic  throttle  control  systems  for Class 7 and 8
trucks.  The majority of these products are sold directly to original  equipment
manufacturers  such as  Freightliner,  Navistar,  Volvo,  Isuzu and Motor  Coach
Industries.  We also sell these products through a  well-established  network of
independent  distributors.  The major  competitors in one or more of our product
lines include Morris Controls,  Furon, Teleflex,  Dura Automotive-Hella and KSR,
Inc.  Markets for electronic  throttle control systems are developing in smaller
classes of trucks,  diesel-powered pick-up trucks and automobiles. The major car
manufacturers are converting gasoline-powered  automobiles and pick-up trucks to
the electronic  throttle control system,  although this requires engine redesign
by the automotive  manufacturers  which is presently ongoing.  In addition,  the
passenger  vehicles  market  began the  introduction  of  adjustable  foot pedal
systems  during  1999.  We  purchased  an  adjustable  foot pedal  designer  and
manufacturer in July 1999.

Electrical  Components and Global Positioning System - Our electrical components
product  line  includes  the  design  and  production  of  microcircuits,  cable
assemblies,  position  tilt sensors and other  electronic  products  used in the
telecommunication,  computer  and  transportation  industries.  Major  customers
include Allied Signal,  Raychem and Eaton Corp. Major  competitors  include CTS,
Robertshaw Spectrol, AMP and Nethode. The global positioning system product line
includes commuter railroad train tracking and agricultural  cyber-farming  using
global  positioning  and geographic  information  systems.  Our major  customers
include Chicago Metra,  Tri-Rail,  the Florida  Department of Transportation and
Via Tropical Fruit.


                                       2
                                     <PAGE>

Agricultural Equipment - Our agricultural equipment product lines include rotary
cutters,  discs,  harrows and sprayers.  These  products are sold to independent
equipment dealers located primarily in the Southeastern United States. Our major
competitors  include  Allied  Industries   (Bushhog),   Wood  Brothers,   Taylor
Industries,  Inc. and Alamo Group.  This business is reported as a  discontinued
operation.

These are our operating  subsidiaries,  all of which are 100% owned, and a brief
description of each operating  subsidiary's  business (the subsidiaries that are
reported as discontinued operations or are no longer operating are not listed).


Vehicle Components
------------------

Williams  Controls  Industries,   Inc.:  Manufactures  vehicle  components  sold
primarily in the transportation industry.

ProActive Acquisition Corporation.: Conducts research and development activities
related to adjustable foot pedals and manufactures adjustable pedal systems.

Premier Plastic  Technologies,  Inc.:  Manufactures  plastic  components for the
automotive industry.

NESC  Williams,  Inc.:  Installs  conversion  kits  to  allow  vehicles  to  use
compressed natural gas and provides natural gas well metering services.

Williams Automotive, Inc.: Markets our products to the automotive industry.

Williams  Technologies,  Inc.:  Supports  all  subsidiaries  of our  company  by
providing   research  and   development   and  developing   strategic   business
relationships to promote "technology partnering."

Williams  World  Trade,   Inc.:   Manages  foreign   sourcing  for  all  of  our
subsidiaries,  affiliates  and third party  customers  through its wholly  owned
subsidiary located in Kuala Lumpur, Malaysia.


Electronic Components and Global Positioning System
---------------------------------------------------

Aptek  Williams,  Inc.:  Develops and  produces  sensors,  microcircuits,  cable
assemblies  and other  electronic  products for the  telecommunications  and the
transportation  industry,  and conducts  research and development  activities to
develop commercial  applications of sensor related products for the subsidiaries
of the Company.


GeoFocus,  Inc.: Develops train tracking and cyber-farming  systems using global
positioning systems and geographical information systems.


Acquisitions and Dispositions
-----------------------------

From fiscal 1994 through  fiscal  1996,  we pursued an  acquisition  strategy to
integrate vertically through the acquisition of a sensor  manufacturing  company
and horizontally through the acquisition of companies in similar industries that
could  benefit from our sensor and control  experience.  During this period,  we
acquired  several  companies  with  products  that could benefit from sensor and
control applications.

In fiscal 1997, we changed our diversification acquisition strategy to focus our
corporate  and  financial  resources  on  opportunities  emerging in our vehicle
components  business unit and global  positioning system train tracking markets.
We may not be able to capitalize on opportunities emerging in vehicle components
or global  positioning  system train tracking  markets and/or the development of
commercial  applications  of sensor  related  products.  In addition,  if we are
successful in one or more  endeavors,  we cannot be certain that those endeavors
will be profitable.


                                       3
                                     <PAGE>

In March 1998, we completed the sale of our subsidiary comprising the automotive
accessories  business  unit. On December 14, 1998, we announced our intention to
sell the  agricultural  equipment  business  unit, and we retained an investment
banking firm to advise us on the sale and solicit  potential  purchasers for the
business unit. In June 1998, we restructured our investment in Ajay Sports, Inc.
to provide for a repayment of all loans and an increase in the dividend  rate on
our preferred stock  investment on June 30, 2001. In July 1999, we purchased the
ProActive  pedals division of Active Tools  Manufacturing,  Co., Inc.  ProActive
Pedals is a designer  and develop of  adjustable  foot pedal  system and modular
pedal systems.


Competition
-----------

In general, our products are sold in highly competitive markets to customers who
are  sophisticated  and demanding  concerning  price,  performance  and quality.
Products are sold in competition with other independent suppliers (some of which
have   substantial    financial   resources   and   significant    technological
capabilities),  and many of these  products  are,  or could be,  produced by the
manufacturers to which we sell these products.  Our competitive  position varies
among our product lines.

In the vehicle components  segment, we are the largest domestic producer of ETCs
sold in the heavy truck ETC market.  We have only one primary  competitor in the
diesel heavy truck market. We also manufacture pneumatic and air control systems
for the heavy truck  market,  which is comprised of numerous  highly  fragmented
competitors.  We believe  the  principal  method of  competition  for ETC in the
trucking  industry is quality and  engineering  added value and  reputation.  In
addition,  attainment  of the ISO 9001  and QS 9000  quality  certifications  is
critical to  qualifying  as a supplier to the  automotive  industry  and certain
manufacturers in the truck industry.  Three of our  manufacturing  facilities in
our vehicle components segment have attained these certifications.

During fiscal 1999, we began the introduction of our electronic throttle control
systems product into the passenger  vehicle market which consists of cars, small
trucks,  mini vans and sport utility vehicles.  Although our electronic throttle
control  systems  product has been  successful in the domestic  heavy duty truck
market,  we cannot be sure that it will be fully  accepted in these new markets.
Introduction  of electronic  throttle  control in gasoline  engines will require
modification  or redesign of engine  components  that will be dependent upon the
timing  of  development  by the  automotive  manufacturers  and  their  original
equipment manufacturers.  However, based on initial acceptance, we expect that a
substantial  number of passenger  vehicles will convert to  electronic  throttle
controls over the next five years. Our primary  competitors in the United States
are Teleflex,  Dura  Automotive-Hella  and KSR, Inc. Each of these  companies is
substantially  larger and has greater financial  resources than us. Furthermore,
we have no  control  over  the  timing  of the  introduction  of the  electronic
throttle  control into the  automotive,  small truck and sport  utility  vehicle
markets.

We purchased  substantially all of the assets and assumed certain liabilities of
ProActive  Pedals in July 1999.  ProActive  owns  patent  rights and designs for
adjustable  foot pedal systems and currently  produces the adjustable foot pedal
for the Dodge Viper. We currently  compete against Teleflex and KSR, Inc. in the
adjustable foot pedal market, and we expect Dura  Automotive-Hella  to enter the
market with  adjustable foot pedal designs.  Thus, we will be competing  against
much larger  competitors in these markets with financial  resources much greater
than ours and with existing long-term supplier relationships with the automotive
industry.




                                       4
                                     <PAGE>

Marketing and Distribution
--------------------------

We sell our  products to customers in the truck,  automotive,  heavy  equipment,
telecommunication and other diversified industries worldwide;  approximately 95%
of its  sales  from  continuing  operations  are  to  customers  in the  vehicle
component segment and 63% of its sales from continuing operations are from sales
of ETC  products.  For the  years  ended  September  30,  1999,  1998 and  1997,
Freightliner  accounted for 27%, 21% and 16%,  Navistar  accounted for 15%, 16%,
and 16%, Volvo accounted for 8%, 9%, and 8% and General Motors accounted for 5%,
3% and 0% of net sales from continuing operations,  respectively.  Approximately
20%, 15% and 14% of net sales from  continuing  operations in fiscal 1999,  1998
and  1997,  respectively,  were  to  customers  outside  of the  United  States,
primarily  in Canada,  Mexico and Sweden,  and, to a lesser  extent,  in Europe,
South  America and  Australia.  See note 15 of Notes to  Consolidated  Financial
Statements.

The Company  performs  ongoing credit  evaluations  of its customers'  financial
condition and maintains  allowances for potential  credit losses.  Actual losses
and allowances have been within management's expectations.


Existing Future Sales Orders
----------------------------

Future sales orders for our products were approximately $17,625 at September 30,
1999, compared to approximately  $16,100 at September 30, 1998. These are orders
for which customers have requested delivery at specified future dates within one
year. We have not  experienced  significant  problems  delivering  products on a
timely basis.


Environment
-----------

Our  operations  result  in the  production  of small  quantities  of  materials
identified  by  the  Environmental   Protection  Agency  of  the  United  States
Government  as  "hazardous  waste  substances"  which  must  be  disposed  of in
accordance  with applicable  local,  state and federal  guidelines.  Substantial
liability  may  result to a company  for  failure,  on the part of itself or its
contractors,  to dispose of hazardous  wastes in accordance with the established
guidelines,  including potential liability for the clean up of sites affected by
improper  disposals.  We use our best  efforts  to  ensure  that  any  hazardous
substances are disposed of in an environmentally  sound manner and in accordance
with these guidelines.

We have  identified  certain  contaminants  in the soil of our Portland,  Oregon
manufacturing  facility,  which we believe  was  disposed  on the  property by a
previous property owner. We intend to seek  indemnification  from such party for
the costs of permanent  monitoring,  or cleanup if required. We have retained an
environmental  consulting  firm that has conducted tests to determine the extent
of any contamination. Based on the results of the tests and current regulations,
the  contamination  is not a  reportable  event.  We believe that we can enforce
available claims against the prior property owner for any costs of monitoring or
cleanup.   We  believe  we  are  currently  in  compliance  with   environmental
regulations.


Government Regulation
---------------------

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, after an investigation, NHTSA finds that we are not in compliance
with any of it's standards or  regulations,  among other things,  it may require
that we recall our products, which are found not to be in compliance, and repair
or replace such products. We believe we are currently in compliance with NHTSA.








                                       5
                                     <PAGE>

Product Research and Development
--------------------------------

Our operating  facilities  engage in  engineering,  research and development and
quality  control   activities  to  improve  the  performance,   reliability  and
cost-effectiveness  of our product lines.  Our  engineering  staff works closely
with our  customers in the design and  development  of new products and adapting
products for new  applications.  During 1999,  1998 and 1997,  the Company spent
$3,424,  $2,778,  and $1,832  respectively,  on these  activities for continuing
operations.  We intend to increase our research and development  expenditures in
fiscal 2000 to design ETC products  compatible with gasoline  powered  vehicles,
develop commercial  applications for inertia, tilt and position sensor products,
and the  development  of adjustable  foot pedal and ETC systems for  automotive,
sport utility vehicles,  light trucks and heavy trucks, and further  development
of train tracking products. The Company is in the early stages of development of
these  programs  and expects to increase  research and  development  spending by
approximately $3,000 in fiscal 2000. The majority of the additional expense will
be spent on developing passenger vehicle ETC and adjustable foot pedals.


Patents and Trademarks
----------------------

Our product lines generally have strong name recognition in the markets in which
they serve.  We have a number of product  patents over a period of years,  which
expire at various times. We consider each patent to be of value and aggressively
protect our rights against infringement throughout the world. We own two patents
(expiring in 2009) which we believe improves the marketability of the electronic
product line of the heavy vehicle  components  segment.  We do not consider that
the loss or expiration of either patent would  materially  adversely  affect us;
however, competition in the electronic product line could increase without these
patents.  We have entered into a royalty bearing patent license agreement with a
private inventor, under which we hold an exclusive,  worldwide license for three
patents covering adjustable foot pedals. The license agreement remains in effect
for the  life  of the  patents  and  requires  yearly  minimum  payments  to the
inventor.  We  believe  these  licensed  patents  play  a  significant  role  in
establishing our proprietary  position in the adjustable foot pedal market,  and
the termination of the license or the loss of any of the licensed  patents could
materially adversely affect our ability to market adjustable foot pedals. We own
numerous  trademarks,  enabling  us to  market  our  products  worldwide.  These
trademarks include "Williams" and "Aptek". We believe that in the aggregate, the
rights  under  our  patents  and  trademarks  are  generally  important  to  our
operations,  but do not  consider  that any patent or trademark or group of them
related to a specific  process or product is of material  importance in relation
to our total business except as described above.


Raw Materials; Reliance on Single Source Suppliers
--------------------------------------------------

We produce our products from raw materials,  including brass,  aluminum,  steel,
plastic,  rubber and zinc,  which  currently are widely  available at reasonable
terms.  We rely upon,  and expect to continue to rely upon CTS  Corporation  and
Caterpillar,  Inc. as single  source  suppliers for critical  components  and/or
products as these suppliers are currently the only manufacturers of sensors made
specifically  for the Company's ETC system.  We manufacture a foot pedal using a
contact  position sensor  manufactured by Caterpillar,  Inc. used exclusively on
Caterpillar  engines.  Caterpillar  supplies  this sensor and requires  that its
sensor be used on all  Caterpillar  engines;  therefore,  the  Company  does not
consider the Caterpillar  sensor supply 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 retail  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  and  application.  We have  established  a warranty
reserve  based upon our  estimate  of the future  cost of  warranty  and related
service  costs.  We  regularly  monitor our  warranty  reserve  for  adequacy in
response to historical experience and other factors.






                                       6
                                     <PAGE>

Employees
---------

We employ  approximately  514  employees,  including  140 union  employees.  Our
non-union  employees  are  engaged  in  sales  and  marketing,   accounting  and
administration,   product  research  and  development,  production  and  quality
control. Our union employees are engaged in manufacturing  vehicle components in
the Portland,  Oregon facility and are represented by the  International  Union,
United Automobile Workers of America and Amalgamated Local 492 (the "Union"). We
have a collective  bargaining agreement with the Union that expires in September
2002,  which  provides  for  wages  and  benefits  (including  pension,   death,
disability, health care, unemployment, vacation and other benefits) and contains
provisions governing other terms of employment,  such as seniority,  grievances,
arbitration and Union recognition. Our management believes that our relationship
with our  employees  and the  Union are good.  We could  experience  a change in
non-union labor costs as a result of changes in local economies and general wage
increases.


Item 2. Properties
------------------
(Dollars in thousands)

The following table outlines the principal  manufacturing  and other  facilities
owned by us, subject to mortgages on all facilities except Williams and Agrotec.




Entity             Facility Location                   Type and Size of Facility
------             -----------------                   -------------------------

Williams           Portland, Oregon                    Manufacturing and offices
                                                       160,000 square feet

Aptek              Deerfield Beach, Florida            Manufacturing and offices
                                                       48,000 square feet

Hardee             Loris, South Carolina               Manufacturing and offices
                                                       101,000 square feet


Agrotec            Pendleton, North Carolina           Manufacturing and office
                                                       43,000 square feet

Our  manufacturing  facilities  are equipped  with the  machinery  and equipment
necessary to manufacture and assemble its products. Management believes that the
facilities  have been  maintained  adequately,  and that we could  increase  our
production  output  significantly  at  any  of our  facilities  with  additional
equipment and work force.  The Hardee and Agrotec  properties  are classified as
assets held for disposition.


Facilities  that are  encumbered  by  mortgages  at  September  30,  1999 are as
follows:  Hardee,  $570 and Aptek  $2,381.  A bank  holds a deed of trust on the
Williams facility.







                                       7
                                     <PAGE>

Item 3. Legal Proceedings
-------------------------

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



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

We did not  submit  any  matters to a vote of its  security  holders  during the
fourth quarter of the year ended September 30, 1999.














                                       8
                                     <PAGE>


                                     Part II
                                     -------


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
-----------------------------------------------------------------------------

Our  common  stock is traded  on the  over-the-counter  market  of the  National
Association of Securities Dealers Automated Quotation ("NASDAQ") National Market
System under the symbol "WMCO."

The range of high and low bid closing  quotations  for our common stock for each
fiscal quarter for the past two fiscal years is as follows:

                                                                 1999
                                                           ----------------
              Quarter                                      High        Low
              -------                                      -----      -----
    October 1 - December 31                                $2.50      $2.00
    January 1 - March 31                                    3.00       2.19
    April 1 - June 30                                       3.25       2.19
    July 1 - September 30                                   3.13       2.47


                                                                 1998
                                                           ----------------
              Quarter                                      High        Low
              -------                                      -----      -----
    October 1 - December 31                                $2.50      $1.94
    January 1 - March 31                                    2.78       2.22
    April 1 - June 30                                       3.34       2.59
    July 1 - September 30                                   2.94       2.03



There were 488 record  holders of our common stock as of November  30, 1999.  We
have never paid a dividend with respect to our common stock and have no plans to
pay a dividend in the foreseeable future.









                                       9
                                     <PAGE>

Item 6. Selected Financial Data
-------------------------------
(Dollars in thousands - except per share amounts)


 <TABLE>
 <CAPTION>
 <S>                                                      <C>         <C>         <C>         <C>         <C>

 Statement of Income Data:
 Year ended September 30,                                   1999*       1998        1997       1996**      1995***
 ------------------------                                   -----       ----        ----       ------      -------

 Net sales from continuing operations                     $ 61,422    $ 57,646    $ 46,671    $ 40,253    $ 37,968
 Earnings (loss) from continuing operations                 (3,928)      4,611       2,515       2,975       4,812
 Net earnings (loss)                                        (9,539)        312      (2,037)       (561)      4,512
 Earnings (loss) from continuing operations
     per common share - basic                                (0.24)       0.24        0.14        0.18        0.28
 Earnings (loss) from continuing operations
     per common share - diluted                              (0.24)       0.23        0.14        0.17        0.27
 Net earnings (loss) per common share - basic                (0.54)       0.00       (0.12)      (0.03)       0.27
 Net earnings (loss) per common share - diluted              (0.54)       0.00       (0.12)      (0.03)       0.26
 Cash dividends per common share                                 -           -           -          -            -

 Balance Sheet Data:
 September 30,                                              1999*       1998        1997       1996**      1995***
 ------------------------                                   -----       ----        ----       ------     -------
 Current assets                                           $ 28,023    $ 31,716    $ 25,156    $ 30,926    $ 25,788
 Current liabilities                                        18,865      12,767       9,028      29,600       7,881
 Working capital                                             9,158      18,949      16,128       1,326      17,907
 Total assets                                               64,504      68,565      48,313      53,049      47,182
 Long-term liabilities                                      27,423      31,387      22,450       4,726      20,244
 Minority interest in consolidated subsidiaries                  -           -           -         713         764
 Shareholder' equity                                        18,206      24,411      16,835      18,010      18,293


</TABLE>

Note:  Except for the balance sheet amounts for 1996 and 1995, the above amounts
reflect the  Automotive  Accessories  and  Agricultural  Equipment  segments  as
discontinued operations.  See Note 14 to the Notes to the Consolidated Financial
Statements.

*1999 data includes an acquisition made in July. Net sales, loss from operations
(including expense of $1,750 for acquired  in-process research and development),
and total  assets  related to this  acquisition  were $55,  $(2,066) and $6,320,
respectively.  The 1999 loss from  continuing  operations  includes  a loss from
impairment of assets of $5,278. See Notes 10 and 18 to the Notes to Consolidated
Financial Statements for information on the acquisition and the impairment loss.

**1996 data includes  acquisitions  made in April and July 1996. Net sales, loss
from  operations  and total assets  related to these  acquisitions  were $2,782,
$(46) and $2,869, respectively.

***1995  data  includes an  acquisition  made in April.  Net sales,  income from
operations and total assets related to this  acquisition  were $2,863,  $182 and
$7,544, respectively.




                                       10
                                     <PAGE>
Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------
(Dollars in thousands - except per share amounts)

See "Cautionary Statement" contained at the beginning of this report.

Financial  Position and Capital  Resources
Financial  Condition,  Liquidity and Capital Resources
------------------------------------------------------

Our  principal  sources  of  liquidity  are  funds  generated  from  operations,
borrowings  under our  credit  facilities,  and  capital  leases  for  equipment
purchases  from  various  leasing  companies.  Primarily  as  a  result  of  the
acquisition  of  ProActive  Pedals in July 1999 (see Note 18 to the Notes to the
Consolidated Financial  Statements),  we have a bridge loan outstanding from our
bank at September 30, 1999.  This loan,  Term Loan III, is due in February 2000.
We plan to initiate the process of refinancing this borrowing by raising capital
or debt in a private  placement,  which we expect to complete in February  2000.
Should we not be successful in refinancing  this borrowing,  we would request an
extension  on the due date of Term Loan III from the bank.  We  anticipate  that
cash  generated  from  operations,  bank  borrowings  and capital leases will be
sufficient  to  satisfy  our  other  working  capital  and  capital  expenditure
requirements for current operations for the next twelve months. At September 30,
1999, the Company's  working capital  decreased to $9,158 compared to $18,949 at
September  30,  1998,  and the  current  ratio was 1.49 at  September  30,  1999
compared to 2.48 at  September  30,  1998.  The  decrease in working  capital is
attributable  primarily to the writedown of asset values  related to an increase
in the estimated loss on disposal for the  Agriculture  Equipment  segment,  the
$2,500 short term bridge loan for the  acquisition  of ProActive,  and increased
accounts  payable at  September  30,  1999,  partly due to  significant  capital
expenditures made during the fourth quarter.

Cash increased  $1,042 at September 30, 1999 compared to September 30, 1998 as a
result of a large payment from a customer received on September 30. Net deferred
income tax assets increased $4,692,  from $2,204 at September 30, 1998 to $6,896
at September 30, 1999,  primarily  due to an increase in the  estimated  loss on
disposal of the Agricultural  Equipment  segment and the loss from impairment of
assets of the Automotive  Accessories  segment.  At September 30, 1999 property,
plant and equipment increased $762 to $20,775,  compared to $20,013 at September
30,  1998 due  primarily  to  capital  equipment  purchases  for  machinery  and
equipment,  offset  somewhat by the sale of a building and land which were being
leased  by a  third  party  and an  increase  in  accumulated  depreciation.  At
September 30, 1999, long-term debt and capital leases decreased $667 to $29,936,
compared to $30,603 at  September  30,  1998.  Repayments  of long term debt and
capital leases totaling $3,395 and a reduction of capital lease obligations from
termination of the sale/leaseback transaction (see discussion below) offset term
loan borrowings totaling $5,000 and increased capital leases totaling $1,819. At
September 30, 1999,  shareholders' equity decreased $6,205 to $18,206,  compared
to $24,411  at  September  30,  1998 due  primarily  to a net loss of $9,539 for
fiscal 1999, partially offset by net proceeds from a private placement of common
stock totaling $3,379 completed during fiscal 1999.

Cash flows from  continuing  operations were $7,664 for the year ended September
30, 1999 compared to $2,083 for the year ended  September  30, 1998.  During the
year ended September 30, 1999,  decreased  earnings of $9,851 and an increase in
deferred  income  taxes from  continuing  operations  of $2,565 were offset by a
charge for acquired  in-process  research and development of $1,750,  and a loss
from impairment of assets of the Automotive Accessories segment totaling $5,278.
The  Company's  discontinued  operations  used cash of $1,998 and $3,700 for the
years ended September 30, 1999 and 1998, respectively.

In August,  1999, $500 was paid to a previous  lender,  on behalf of Ajay, under
the terms of an intercreditor agreement. In July, 1999, a building and land were
sold with net proceeds of $1,192.  The impairment  loss of $5,278  includes $528
related to this disposal. During fiscal 1999, $575 of advances were made under a
note to Kenco  Products,  Inc.  ("KPI").  The impairment loss of $5,278 includes
amounts advanced to KPI under the note.

In  April  1997  we  sold  the  Portland,  Oregon  manufacturing  facility  in a
sale/leaseback  transaction  for $4,600.  The transaction was accounted for as a
financing  and the  capitalized  lease  obligations  of $4,600 were  recorded as
long-term  liabilities.  In April  1998,  under the terms of the  agreement,  we
provided a mortgage  note to the  purchaser  in the amount of $3,200,  which was
reported as a note  receivable  at September  30,  1998.  In December  1998,  we
exercised a repurchase  option on the property and  repurchased the building for
$4,700  consisting  of cash  of  $1,500  and  the  note  receivable  of  $3,200.


                                       11
                                     <PAGE>

Accordingly,  the note receivable of $3,200 and the capital lease  obligation of
$4,600 have been  eliminated  from the balance sheet at September 30, 1999.  The
costs  associated  with the building  repurchase  are reported in other expenses
during the year ended September 30, 1999.

In July,  1999 we  consummated  the private  placement  of common stock with net
proceeds of $3,379.  In addition,  during July, we borrowed $2,500 from our bank
under an additional  term loan.  Proceeds from the common stock offering and the
term loan were used to purchase the net assets of ProActive  Pedals,  a division
of Active Tool and  Manufacturing.  The purchase  price of ProActive  Pedals was
$5,750, plus assumption of approximately $286 in liabilities.  In addition,  the
Company  entered into a patent license  agreement with the patent holder,  which
required an initial  payment of $600 and minimum annual royalty  payments of $95
per year for ten years.  The primary assets acquired  include  tooling  designs;
technology  and  patent  rights on  adjustable  foot pedal  systems,  as well as
modular foot pedal systems.  The additional bank financing was borrowed under an
amendment to the  Company's  existing  financing  facility as Term Loan III. The
principal amount as Term Loan III is payable in three equal monthly installments
of $139 (plus interest) beginning in November 1999 with the remaining balance of
$2,083 due in February 2000.  Interest on Term Loan III is computed at the prime
rate plus 1.25%. (9.5% at September 30, 1999).

In December,  1998 we borrowed  $2,500 from our bank under amended term loans to
finance the repurchase of the Portland,  Oregon  manufacturing  facility and for
working capital purposes.  Approximately  $1,222 of the additional financing was
borrowed under an amendment to our existing Term Loan I, the increased principal
amount  of  which  is  payable  in equal  monthly  installments  of $60 with the
remaining  balance of the entire  Term Loan I of $3,150 due at  maturity on July
11, 2001. Approximately $1,278 of the additional financing was provided under an
amended  Term Loan II which is payable  in 18 equal  installments  of $71,  plus
variable interest (8.5% at June 30, 1999).

During  the three  fiscal  years  ended  September  30,  1999,  our  Agriculture
Equipment  segment has reported net losses from  operations  totaling $2,651 and
reported a total net loss on disposal of $7,014.  In addition,  during this same
period, our Automotive  Accessories  segment reported net losses from operations
totaling $1,207 and reported a total net loss on disposal of $3,590. During this
same three year  period  ended  September  30,  1999,  proceeds  of $1,124  were
received for the sale of the Automotive  Accessories  segment and $4,273 of cash
was used for these two discontinued  operations.  We anticipate the Agricultural
Equipment  segment  will  use cash  during  the 2000  fiscal  year,  until it is
disposed of.

The Company had $187 available  under its revolving  credit facility with a bank
at September 30, 1999. At September 30, 1999,  the bank waived  compliance  with
all  financial  covenants as the Company was out of  compliance at September 30,
1999 with its  covenants  under its  borrowing  arrangement.  The  waivers  were
obtained in a manner that allows the Company's  debt to be classified as current
and long-term based on the payment terms of the loans at September 30, 1999.

Market Risk - The Company has not entered into derivative financial instruments.
The  Company may be exposed to future  interest  rate  changes on its debt.  The
Company does not believe that a hypothetical  10 percent change in end of period
interest rates would have a material effect on the Company's cash flow.

In June, 1999 the FASB issued  Statement of Financial  Accounting  Standards No.
137,  "Accounting  for Derivative  Instruments  and Hedging  Activities"  ("SFAS
137").  SFAS  137  is an  amendment  to  SFAS  133  "Accounting  for  Derivative
Instruments  and  Hedging  Activities."  SFAS  137  establishes  accounting  and
reporting  standards for all derivative  instruments.  SFAS 137 is effective for
fiscal  years  beginning  after June 15,  2000.  The  Company  does not have any
derivative  instruments and  accordingly,  the adoption of SFAS 137 will have no
impact on the Company's financial position or results of operations.

Year 2000 Conversion - The Company  recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 software failures. Software failures
due to processing errors  potentially  arising from calculations  using the Year
2000  date  are a  known  risk.  The  Company  has  addressed  the  risk  to the
availability  and  integrity of  financial  systems and the  reliability  of the
operational  systems.  The Company has established  processes for evaluating and
managing  the  risks  and  costs   associated   with  this  problem,   including
communicating with suppliers,  dealers and others with which it does business to
coordinate Year 2000 conversion. During 1998, the Company began implementing the
installation  of new  financial  software  that is Year 2000  compliant  for the
purpose of improving  operations  and service to its  existing  and  prospective
truck and  automotive  customers.  This  task has been  completed  in 1999.  The
decision to upgrade the Company's  software was made  irrespective  of Year 2000
compliance issues.


                                       12
                                     <PAGE>
Since  January,  1998,  the  Company  has been  engaged in  achieving  Year 2000
compliance.  The Company's  Year 2000 project is divided into several phases and
corrective  actions for major  systems are  complete.  All  hardware,  software,
services and business relationships with trading partners that could be affected
by Year 2000 issues were tested for Year 2000 compliance.

The Company  relies on computer  systems and  software to operate its  business,
including applications used in sales, purchasing,  inventory management, finance
and various administrative functions. The Company had determined that certain of
its  software  applications  would be  unable  to  interpret  appropriately  the
calendar Year 2000 and subsequent  years.  As of December 15, 1999,  100% of the
Company's  mission critical systems that may have a material Year 2000 liability
are Year 2000 compliant.

The Company's amended budget for its Year 2000 project is $310, all of which had
been spent  through  December  1999.  The  Company  acquires  a majority  of its
inventory  from  approximately  20%  of  its  vendors.  If  these  vendors  have
unresolved Year 2000 issues that affect their ability to supply merchandise, the
Company  could be adversely  affected.  The Company  conducted an  assessment of
vendors whose potential Year 2000 liability could materially affect  operations.
Based on this assessment the Company  believes that it is not materially at risk
from a Year 2000 liability posed by its vendors. In the event a vendor's ability
to supply the Company is  adversely  affected by Year 2000  issues,  the Company
believes that it will be able to find alternative suppliers.

Should there be a mission  critical system,  not previously  identified as such,
that becomes a Year 2000  liability or should a vendor  unexpectedly  experience
Year 2000 issues which adversely affect its ability to supply  merchandise,  the
Company's  business,  financial  condition  and results of  operations  could be
adversely  affected.  However,  the Company  believes that the financial  impact
would not be material  since all systems  believed by the Company to be critical
are Year 2000  compliant and the Company  believes it is not  materially at risk
from a negative impact as a result of a Year 2000 liability caused by a vendor.


Risks - Despite the Company's efforts to identify all internal systems with Year
2000 issues,  it is likely that  unexpected  problems  will arise.  As with most
businesses,  the  Company  will  also be at risk  from  external  infrastructure
failures that could arise from Year 2000 failures. It is possible,  for example,
that electrical power,  telephone and financial  networks across the nation will
experience  breakdowns in the days and weeks following January 1, 2000. There is
also  a  real  possibility  of  failures  of  key  components  in  the  national
transportation infrastructure or delays in rail, over-the-road and air shipments
due to failures in transportation  control systems due to the Year 2000 problem.
Investigation  and  assessment  of risks  associated  with such  ubiquitous  and
interconnected  utility  systems  and  transportation  systems  are  beyond  the
resources of the Company. The failure by the Company or third parties to correct
a material  Year 2000 problem could result in an  interruption  in, or a failure
of, certain of the Company's  normal  business  activities or  operations.  Such
failures  could  materially  and  adversely  affect  the  Company's  results  of
operations, liquidity and financial condition.

                                       13
                                     <PAGE>

Results of Operations
Year ended September 30, 1999 compared to the year ended September 30, 1998
---------------------------------------------------------------------------

Overview
--------

Net sales from  continuing  operations  increased 6.6% to $61,422 in fiscal 1999
from  $57,646 in fiscal 1998 due to higher unit sales  volumes in the  Company's
vehicle components segment.

In fiscal 1999, loss from continuing operations was $3,031, compared to earnings
from  continuing  operations of $8,991 in fiscal 1998.  The  decrease,  totaling
$12,022,  was the result of reduced  gross  margin of $3,398,  primarily  due to
increased warranty expenses and increased  inventory reserves based on events in
the fourth quarter of fiscal 1999.  Also in fiscal 1999, we expensed  $1,750 for
research  and  development  efforts  in process  at the date of  acquisition  of
ProActive and  recognized a $5,278 loss from the impairment of assets related to
Kenco, our former Automotive Accessories segment.

Net loss allocable to common shareholders was $10,135 in fiscal 1999 compared to
net income allocable to common  shareholders of $42 in the prior fiscal year due
to the  factors  described  above,  as well as an  increase in the net loss from
discontinued  operations  based upon  events and  information  that  resulted in
management's  revised  estimates of the net realizable value of the Agricultural
Equipment segment.


Net Sales
---------
Sales from continuing  operations  increased  $3,776, or 6.6%, to $61,422 in the
year ended  September 30, 1999 from $57,646 in the year ended September 30, 1998
primarily due to higher unit sales volumes in our Vehicle Components segment.

Sales from continuing  operations in the Vehicle  Components  segment  increased
$4,065,  or 7.5%,  to $58,136 in the year ended  September  30, 1999 over levels
achieved  in the year ended  September  30,  1998 due to higher ETC unit  sales.
Sales from  continuing  operations in our Electrical  Components and GPS segment
decreased $289, or 8.1%, due to lower unit sales of electrical components.


Gross margin
------------

Gross margin from continuing  operations  decreased $3,398, or 19.4%, to $14,119
(23.0% of  sales)  compared  to  $17,517  (30.4%  of  sales)  in the year  ended
September 30, 1998.  Gross margin  decreased  $2,091 or 12.9%, in the year ended
September 30, 1999 in the Vehicle  Components segment due primarily to increased
losses at the company's  plastic  injection  molding and tooling  subsidiary and
increased warranty costs of $781.

Our plastic injection molding and tooling  subsidiary,  the operating results of
which are included in the Vehicle Components segment, reported an increased loss
from  operations in the year ended  September 30, 1999 of $3,673.  Sales,  gross
margin  (loss) and  operating  loss for the year ended  September  30, 1999 were
$5,253,  ($3,083),  and  ($4,445),  respectively,  compared to $4,949,  $205 and
($772) in the prior fiscal year.  The  operation  moved to a new facility in the
fourth quarter of fiscal 1998 that has a higher  breakeven sales level and plant
capacity than the prior facility. The operation has not achieved breakeven sales
to date and is not expected to achieve  breakeven sales until the second quarter
of fiscal 2000, when a new $16,000  contract is scheduled to begin. In addition,
the plastic  injection and molding  subsidiary has been  experiencing  operating
problems resulting from inefficient  production from defective molds supplied by
customers  and operating  problems on the  manufacturing  floor.  The Company is
evaluating  each of the molds in an effort to reduce  the high scrap rate it has
experienced. Also, in response to the issues previously mentioned, in the fourth
quarter of fiscal 1999, the tooling operation was closed down.

Gross margin at the Electrical  Components  and GPS segment  decreased $852 from
$740 for the  year  ended  September  30,  1998 to  ($112)  for the  year  ended
September 30, 1999 primarily due to fixed expenses and other charges.


                                       14
                                     <PAGE>
Operating expenses
------------------

In conjunction  with the  acquisition of the ProActive  Pedal Division of Active
Tool and  Manufacturing  Co.,  Inc. in July,  1999,  we  expensed  $1,750 of the
purchase price as acquired  in-process  research and development during the year
ended  September 30, 1999.  Also,  during the year ended  September 30, 1999, we
recognized a $5,278 loss from the  impairment  of assets  related to Kenco,  the
Company's  former  Automotive  Accessories  segment.  The loss  consisted  of an
impairment  of  non-voting  preferred  stock and notes and  accounts  receivable
totaling  $4,655 and  impairment  of property  totaling $623 (see Note 10 to the
Notes to Consolidated Financial Statements).

Operating  expenses  before the  charge for  acquired  in-process  research  and
development and the loss from impairment of assets increased  $1,596,  or 18.7%,
to $10,122 for the year ended September 30, 1999 compared to $8,526 for the year
ended  September  30,  1998  primarily  as a result of  increased  research  and
development  expenses  of $646 and an  increase  in  administration  expenses of
$1,018.  Research and development expenses were increased to support new product
development  for  development of the automotive ETC product,  for development of
sensor-related  products and for existing  customers.  Operating expenses before
the  charge for  acquired  in-process  research  and  development  and loss from
impairment of assets as a percentage  of sales,  was 16.5% and 14.8% in the year
ended  September  30, 1999 and 1998.  Operating  expenses  before the charge for
acquired  in-process  research and  development  and loss from the impairment of
assets increased  $2,269,  or 42.6%, in the year ended September 30, 1999 in the
Vehicle  Components  segment and  decreased  $219,  or 8.0%,  in the  Electrical
Components and GPS segment compared to the prior year period.

Selling expenses were reduced $68 for the year ended September 30, 1999 compared
to 1998.  Selling and  expenses as a percent of sales  decreased  to 3.3% in the
year ended September 30, 1999 compared to 3.6% in the prior year.

In addition,  administration  expenses  increased  $1,018,  primarily to support
management  information service needs with the recent  implementation of new ERP
systems, as well an increased bad debt expense, totaling $225, primarily related
to closing the tooling operation at the plastic injection molding facility,  and
increased  payroll and related costs totaling $160 to support the  sophisticated
machinery and expanded  operations at our plastic  injection molding and tooling
subsidiary.

Acquired   In-Process   Research  and  Development  -  In  connection  with  its
acquisition  of the  assets of  ProActive  Pedals  in July,  1999,  the  Company
recorded  a pretax  charge of $1,750 for  research  and  development  efforts in
process at the date of the acquisition. See Note 18 to the Notes to Consolidated
Financial Statements.

The value  assigned  to the  in-process  research  and  development  efforts was
determined by independent  appraisal and represents  those efforts in process at
the date of  acquisition  that had not  reached  the point  where  technological
feasibility  had  been  established  and that had no  alternative  future  uses.
Accounting rules require that these costs be expensed as incurred.  At September
30, 1999, the Company believes that acquired in-process research and development
efforts related to the acquisition  will result in commercially  viable products
during fiscal 2001 at an additional cost of approximately $3,500.


Interest and Other Expenses
---------------------------

Interest  expense  increased $349 to $2,154 in the year ended September 30, 1999
from $1,805 in the year ended  September 30, 1998.  Interest  expense  increased
primarily  as a result of  increased  capital  lease  obligations  that are at a
higher average interest rate than bank debt. Allocated interest expense included
in  discontinued  operations for the year ended  September 30, 1999 and 1998 was
$277 and $477, respectively.


Discontinued operations
-----------------------

The Company reported a net loss from discontinued  operations of $5,611 for year
ended  September  30,  1999  compared to a net loss of $4,299 for the year ended
September 30, 1998. The Company  adopted a plan of disposal for the  Agriculture
Equipment  segment in late 1998.  As a result,  a net loss on disposal  totaling
$1,403 was recorded for this segment.  However,  during the year ended September
30, 1999, an additional  net loss on disposal  totaling  $5,611 was recorded for
the  disposal  of this  segment.  The loss in fiscal 1999 is based on events and
information,  which  resulted  in  management's  revised  estimate  of  the  net
realizable value of the Agricultural  Equipment Segment. The revised estimate is
based on contract  negotiations  and lower than anticipated bids for portions or
all of the segment.

Net sales from the Agriculture  Equipment  segment declined $1,275,  or 15.0% to
$7,225 in the year ended September 30, 1999 compared to $8,500 in the year ended
September  30,  1998.  The  decline  in  sales  was  due  to  lower  unit  sales
attributable primarily to a weak farm economy.

Estimated  future  losses  from  discontinued   operations  for  the  Automotive
Accessories  segment  were accrued in fiscal 1997.  The  Automotive  Accessories
segment  was sold in March  1998,  and the loss was  $1,625  net of  income  tax
benefits of $1,001.  The  additional  loss in fiscal  1998 over that  accrued in
fiscal 1997 resulted from the loss on the actual  disposition  of the Automotive
Accessories segment which was sold in 1998.

Net earnings (loss) allocable to common shareholders
----------------------------------------------------

Net earnings (loss)  allocable to common  shareholders  were $10,135 in the year
ended  September  30,  1999  compared  to $42 in the  prior  fiscal  year due to
decreased earnings from operations, including the charge for acquired in-process
research and  development  and the loss from  impairment  of assets as described
above.

The effective  income tax rate for  continuing  operations was (27.5)% and 33.9%
for the year ended September 30, 1999 and 1998.


                                       15
                                     <PAGE>
Results of Operations
Year ended September 30, 1998 Compared to September 30, 1997
------------------------------------------------------------

Overview
--------

Net sales from continuing  operations  increased 23.5% to $57,646 in fiscal 1998
from  $46,671 in fiscal 1997 due to higher unit sales  volumes in the  Company's
Vehicle Components segment.

Earnings from continuing  operations  increased  $2,599,  or 40.7%, to $8,991 in
fiscal  1998 from  $6,392 in fiscal  1997.  The  increase  was due to  increased
earnings  from  continuing   operations  of  $3,383  in  the  Company's  Vehicle
Components  segment due to higher unit sales, which was offset by lower earnings
from continuing  operations of $784 in the electrical components and GPS segment
due  to  increased   operating   expenses  for  research  and   development  and
administration  incurred for sensor  development.  Net earnings from  continuing
operations  increased  83.3%,  or $2,096 in fiscal 1998 primarily as a result of
increased earnings before interest and taxes of $2,220 and a lower effective tax
rate as a result of anticipated and realized state tax refunds from prior years.

Net earnings allocable to common shareholders was $42 in fiscal 1998 compared to
a net loss allocable to common  shareholders  of $2,037 in the prior fiscal year
due to increased net income from continuing  operations  offset by losses in the
Company's   discontinued   Automotive  Accessories  and  Agricultural  Equipment
segments.

Net Sales
---------

Net sales from continuing operations in the Vehicle Components segment increased
$11,157, or 26.0%, to $54,071 in fiscal 1998 over levels achieved in fiscal 1997
due to higher ETC unit sales volumes in the Class 7 and 8 truck OEM markets. Net
sales from continuing  operations in the Company's  electrical component and GPS
segments  decreased  $182,  or 4.8%,  due to  lower  unit  sales  of  electrical
components.  Sales of Vehicle Components and electrical components accounted for
93.8% and 6.2% as a percent of total sales for the year ended September 30, 1998
compared to 92.0% and 8.0% for the prior year.

Gross margin
------------

Gross margin from continuing  operations  increased $4,820, or 38.0%, to $17,517
compared to $12,697 in fiscal 1997. Gross margins increased 40.6% in fiscal 1998
in the  Vehicle  Components  segment  due to higher  unit  sales  volumes of ETC
products  and  improved  margins  at the  Company's  plastic  injection  molding
facility. Increases in this segment were offset by a decrease in gross margin of
2.9% in the electrical  component and GPS segments.  Decreased  gross margins in
these segments are  attributed to lower unit sales  volumes.  Gross margins as a
percent of sales  increased to 30.4% in fiscal 1998  compared to 27.2% in fiscal
1997  primarily  as a result of  improved  operating  margins  at the  Company's
plastic injection molding facility in the Vehicle Components segment.

Operating expenses
------------------

Operating expenses for continuing  operations increased $2,221, or 35.2%, during
fiscal  1998  compared  to  amounts  in fiscal  1997.  Operating  expenses  as a
percentage of net sales from continuing  operations increased to 14.8% in fiscal
1998 compared to 13.5% in fiscal 1997.  Operating  expenses increased $1,458, or
33.7%, in fiscal 1998 in the Vehicle  Components  segment and $762, or 38.5%, in
the electronic components and GPS segment compared to 1997 levels.  Increases in
operating  expenses were attributed to higher research and development  expenses
related to new product  development  and  increased  selling and  administration
costs to support the increased sales levels.

Research and development  expenses for continuing  operations increased $946, or
51.6%,  to $2,778  during  fiscal 1998  compared to amounts in fiscal 1997. As a
percentage of net sales from  continuing  operations,  research and  development
expenses  increased from 3.9% to 4.8%.  Research and  development  expenses were
increased  in fiscal  1998 to  support  new  product  development  for  existing
customers,  for development of the automotive ETC product and for development of
sensor-related products.



                                       16
                                     <PAGE>
Selling expenses for continuing  operations  increased 21.6% to $2,065 in fiscal
1998 compared to 1997 levels. Selling expenses as a percentage of net sales from
continuing  operations  were 3.6% in  fiscal  1997 and  1998.  Selling  expenses
increased to support increased sales volumes in the Vehicle Components segment.

General and administrative expenses for continuing operations increased $908, or
32.7%,  in fiscal 1998 to $3,683  compared to fiscal 1997  amounts.  General and
administrative  expenses  were  6.4%  and  5.9%  of net  sales  from  continuing
operations in fiscal 1998 and 1997, respectively.  Increases in dollar amount in
fiscal 1998 were attributed to additional  administrative  personnel required to
support increased sales volumes.


Interest and Other Expenses
---------------------------

Interest expenses increased $434, or 31.7%, to $1,805 in fiscal 1998 from $1,371
in fiscal 1997 due to increased borrowings.  Allocated interest expense included
in  discontinued  operations for the year ended  September 30, 1998 and 1997 was
$477 and $723, respectively.  Other expenses increased $122, or 31.8% to $506 in
fiscal 1998 from $384 in fiscal 1997 due to increased  equity interest in losses
of Ajay.


Discontinued operations
-----------------------

The Company reported a net loss from discontinued operations of $4,299 in fiscal
1998 compared to a net loss of $4,552 in fiscal 1997. The Company adopted a plan
of disposal for the  Automotive  Accessories  segment in fiscal 1997 and for the
Agriculture Equipment segment in late 1998.

The 1998 loss from discontinued operations of the Agriculture Equipment business
consisted of pre-measurement  net losses of $1,271 net of income tax benefits of
$959 and an estimated loss on disposal of $1,403,  net of income tax benefits of
$972.  The  estimated  loss on disposal  includes an  estimated  loss during the
phase-out period of $496 net of income tax benefits of $304. The pre-measurement
loss of $1,271 in fiscal 1998  compares to a loss from  operations  of $1,380 in
fiscal 1997. Net sales from the Agriculture  Equipment business declined $1,081,
or 11.3% to $8,500 in fiscal 1998 compared to $9,581 in fiscal 1997. The decline
in sales  was due to lower  unit  sales  attributable  primarily  to a poor farm
economy in 1998.

The  1998  loss  from  discontinued  operations  of the  Automotive  Accessories
business  was $1,625 net of income tax  benefits  of $1,001.  The loss  resulted
primarily from a reduction in the estimated value of non-voting  preferred stock
received as partial  consideration  for the sale and from  additional  estimated
retained liabilities related to the sale.
















                                       17
                                     <PAGE>

Item 8.    Financial Statements and Supplementary Data
------------------------------------------------------



                             Williams Controls, Inc.
                   Index to Consolidated Financial Statements


                                                                         Page
                                                                         ----

Consolidated Balance Sheets at September 30, 1999 and 1998                19

Consolidated Statements of Shareholders' Equity for the
  years ended September 30, 1999, 1998 and 1997                           20

Consolidated Statements of Operations for the years
  ended September 30, 1999, 1998 and 1997                                 21

Consolidated Statements of Comprehensive Income (Loss)
  for the years ended September 30, 1999, 1998 and 1997                   22

Consolidated Statements of Cash Flows for the years
  ended September 30, 1999, 1998 and 1997                                 23

Notes to Consolidated Financial Statements                              24-51

Report of Independent Public Accountants                                  52

Independent Auditors' Report                                              53

See  page 56 for  Index  to  Schedules  and  page 60 for  Index to Exhibits.








                                       18
                                     <PAGE>

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

<TABLE>
<CAPTION>
<S>                                                                        <C>                 <C>

                                                                             September 30,       September 30,
ASSETS                                                                            1999                1998
                                                                            -----------------   -----------------
Current Assets:
  Cash and cash equivalents                                                     $      2,323        $      1,281
  Trade and other accounts receivable, less allowance of
      $484 and $325 in 1999 and 1998, respectively                                    11,187              11,765
  Inventories                                                                          9,828              10,693
  Deferred income taxes and other                                                      4,325               2,190
  Net assets held for disposition                                                        360               5,787
                                                                            -----------------   -----------------
   Total current assets                                                               28,023              31,716

Property plant and equipment, net                                                     20,775              20,013

Investment in and note receivable from affiliate                                       6,152               6,140

Note receivable                                                                            -               3,200

Net assets held for disposition                                                          500               3,424
Goodwill and intangible assets, net                                                    5,764                 716
Deferred income taxes                                                                  3,025                 167
Other assets                                                                             265               3,189
                                                                            -----------------   -----------------
   Total assets                                                                 $     64,504        $     68,565
                                                                            =================   =================

LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
  Accounts payable                                                              $      9,223        $      5,127
  Accrued expenses                                                                     3,449               3,673
  Current portion of long-term debt and capital leases                                 5,193               1,417
  Estimated loss on disposal                                                           1,000               2,550
                                                                            -----------------   -----------------
   Total current liabilities                                                          18,865              12,767

Long-term debt and capital lease obligations                                          24,743              29,186
Other liabilities                                                                      2,690               2,201

Commitments and contingencies (Note 22)


Shareholders' Equity:
  Preferred stock ($.01 par value, 50,000,000 authorized; 78,500 and
     80,000 issued and outstanding at September 30, 1999 and 1998,
     respectively)                                                                         1                   1

  Common stock ($.01 par value, 50,000,000 authorized; 19,898,728 and
     18,311,288 issued and outstanding at September 30, 1999 and 1998,
     respectively)                                                                       199                 183
  Additional paid-in capital                                                          21,574              17,917
  Retained earnings (Accumulated deficit)                                            (2,691)               7,444
  Unearned ESOP shares                                                                     -                (73)
  Treasury stock (130,200 shares at September 30, 1999 and 1998)                       (377)               (377)
  Note Receivable                                                                      (500)               (500)
  Pension liability adjustment                                                             -               (184)
                                                                            -----------------   -----------------
   Total shareholders' equity                                                         18,206              24,411
                                                                            -----------------   -----------------
    Total liabilities and shareholders' equity                                  $     64,504        $     68,565
                                                                            =================   =================


                      The  accompanying  notes  are an  integral  part of  these balance sheets.
</TABLE>

                                       19
                                     <PAGE>
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                    Williams Controls, Inc.
                                                       Consolidated Statements of Shareholders' Equity
                                                                     (Dollars in thousands)

                           Issued           Issued                    Retained                                  Pension     Share-
                       Preferred Stock   Common Stock    Additional   Earnings   Unearned  Treasury    Note     Liability   holders'
                       Shares  Amount   Shares   Amount   Paid-in   (Accumulated   ESOP     Stock   Receivable  Adjustment  Equity
                                                          Capital     Deficit)    Shares
                       -------------------------------------------------------------------------------------------------------------
Balance, September 30,
   1996                   -    $  -    17,869,987  $179    $9,671       $9,439     $(511)   $(540)   $   -       $(228)    $ 18,010
Net Loss                  -       -             -     -         -       (2,037)        -        -        -           -       (2,037)
Issuance of contingent
   shares for
   acquisition            -       -        42,253     -       106            -         -        -        -           -          106
Treasury stock issued
   for acquisition
   services               -       -             -     -         -            -         -      163        -           -          163
Reduction of
   unallocated ESOP
   shares                 -       -             -     -        45            -       320        -        -           -          365
Change in pension
   liability adjustment   -       -             -     -         -            -         -        -        -         228          228

                       -------------------------------------------------------------------------------------------------------------
Balance, September 30,
   1997                   -       -    17,912,240   179      9,822       7,402      (191)    (377)       -           -       16,835

Net earnings              -       -             -     -          -         312         -        -        -           -          312
Issuance of
   preferred stock     80,000     1             -     -      7,336           -         -        -        -           -        7,337
Dividends on
   preferred stock        -       -             -     -          -        (270)        -        -        -           -         (270)
Common stock issued
   in satisfaction
   of note payable        -       -        42,329     1         99           -         -        -        -           -          100
Issuance of stock
   upon exercise of
   stock options          -       -       150,000     1         61           -         -        -        -           -           62
Common stock issued
   to affiliate for
   note receivable        -       -       206,719     2        498           -         -        -     (500)          -            -
Reduction of
   unallocated ESOP
   shares                 -       -             -     -          7           -       118        -        -           -          125
Change in pension
   liability adjustment   -       -             -     -          -           -         -        -        -        (184)        (184)
Income tax benefit
   of non-qualified
   stock option
   exercises              -       -             -     -         94           -         -        -        -           -           94
                       -------------------------------------------------------------------------------------------------------------
Balance, September
   30, 1998            80,000     1    18,311,288   183     17,917       7,444       (73)    (377)    (500)       (184)      24,411

Net loss                  -       -             -     -          -      (9,539)       -         -        -           -       (9,539)
Dividends on preferred
   stock                  -       -             -     -          -        (596)       -         -        -           -         (596)
Common stock issued in
   private placement      -       -     1,331,149    13      4,539           -        -         -        -           -        4,552
Equity issuance costs     -       -             -     -     (1,173)          -        -         -        -           -       (1,173)
Issuance of stock upon
   exercise of stock
   options                -       -       201,750     2        167           -        -         -        -           -          169
Common stock issued
   from conversion of
   preferred stock     (1,500)    -        54,541     1         (1)          -        -         -        -           -            -
Change in pension
   liability adjustment   -       -             -     -          -           -        -         -        -         184          184
Reduction of unallocated
   ESOP shares            -       -             -     -          7           -       73         -        -           -           80
Income tax benefit of
   non-qualified stock
   option exercise        -       -             -     -        118           -        -         -        -           -          118
                       =============================================================================================================
Balance, September
   30, 1999            78,500   $ 1    19,898,728  $199    $21,574     $ 2,691    $   -     $(377)  $ (500)       $  -      $18,206
                       =============================================================================================================

                                            The   accompanying   notes   are  an integral part of these statements.

</TABLE>
                                       20
                                     <PAGE>
<TABLE>
<CAPTION>
<S>                                                       <C>                  <C>              <C>
                                            Williams Controls, Inc.
                                     Consolidated Statements of Operations
                        (Dollars in thousands, except share and per share information)



                                                                      For the year ended September 30,
                                                                   1999             1998             1997
                                                             -----------------  ---------------   ---------------

Sales                                                           $      61,422     $    57,646       $    46,671
Cost of sales                                                          47,303          40,129            33,974
                                                             -----------------  ---------------   ---------------
  Gross margin                                                         14,119          17,517            12,697

Operating expenses:
 Acquired-in process research and development                           1,750               -                 -
 Research and development                                               3,424           2,778             1,832
 Selling                                                                1,997           2,065             1,698
 Administration                                                         4,701           3,683             2,775
 Loss from impairment of assets                                         5,278               -                 -
                                                             -----------------  ---------------   ---------------
  Total operating expenses                                             17,150           8,526             6,305

Earnings (loss) from continuing operations                            (3,031)           8,991             6,392

Other (income) expenses:
  Interest income                                                       (343)           (297)             (120)
  Interest expense                                                      2,154           1,805             1,371
  Other (income) expense                                                   85               -                 -
  Equity interest in loss of affiliate                                    488             506               384
                                                             -----------------  ---------------   ---------------
   Total other expenses                                                 2,384           2,014             1,635
                                                             -----------------  ---------------   ---------------

Earnings (loss) from continuing operations before income
taxes                                                                 (5,415)           6,977             4,757
Income tax (benefit) expense                                          (1,487)           2,366             2,242
                                                             -----------------  ---------------   ---------------
  Earnings (loss) from continuing operations                          (3,928)           4,611             2,515

Discontinued operations:
  Net loss from operations of the agricultural segment                      -         (1,271)           (1,380)
  Net loss on disposal of the agricultural segment,
       including $638 and $496 for operating losses
       during phase-out period, respectively                          (5,611)         (1,403)                 -
  Net loss from operations of automotive accessories                        -               -           (1,207)
  Net loss on disposal of automotive accessories segment,
       including $387 and $1,965 for operating losses
       during phase-out period, respectively                                -         (1,625)           (1,965)
                                                             -----------------  ---------------   ---------------
 Net loss from discontinued operations                                (5,611)         (4,299)           (4,552)

                                                             -----------------  ---------------   ---------------
Net earnings (loss)                                                   (9,539)             312           (2,037)

Dividends on preferred stock                                            (596)           (270)                 -
                                                             -----------------  ---------------   ---------------

Net earnings (loss) allocable to common shareholders            $    (10,135)     $        42       $   (2,037)
                                                             =================  ===============   ===============

Earnings (loss) per common share from continuing
   operations - basic                                           $      (0.24)     $      0.24       $      0.14
                                                             -----------------  ---------------   ---------------
Loss per common share from discontinued operations - basic      $      (0.30)     $     (0.24)      $     (0.26)
                                                             -----------------  ---------------   ---------------
Net earnings (loss) per common share - basic                    $      (0.54)     $      0.00       $     (0.12)
                                                             =================  ===============   ===============
Weighted average shares used in per share calculation -
   basic                                                           18,603,057      17,922,558        17,656,900
                                                             =================  ===============   ===============

Earnings (loss) per common share from continuing operations
   - diluted                                                    $      (0.24)     $      0.23       $      0.14
                                                             -----------------  ---------------   ---------------
Loss per common share from discontinued operations - diluted    $      (0.30)     $     (0.23)      $     (0.26)
                                                             -----------------  ---------------   ---------------
Net earnings (loss) per common share - diluted                  $      (0.54)     $      0.00       $     (0.12)
                                                             -----------------  ---------------   ---------------
Weighted average shares used in per share calculation -
   diluted                                                         18,603,057      19,808,460        18,001,799
                                                             =================  ===============   ===============

                       The  accompanying  notes  are an  integral  part of these statements.
</TABLE>

                                       21
                                     <PAGE>
<TABLE>
<CAPTION>
<S>                                                      <C>               <C>               <C>

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


                                                                    For the year ended September 30,
                                                               1999              1998               1997
                                                          ----------------  ----------------  ------------------

Net earnings (loss)                                         $     (9,539)       $       312       $     (2,037)
Change in pension liability adjustment                                184             (184)                 228
                                                          ----------------  ----------------  ------------------

Comprehensive income (loss)                                 $     (9,355)       $       128       $     (1,809)
                                                          ================  ================  ==================

</TABLE>












                                       22
                                     <PAGE>

                                          Williams Controls, Inc.
                                   Consolidated Statements of Cash Flows
                                          (Dollars in thousands)
<TABLE>
<CAPTION>
<S>                                                                     <C>          <C>         <C>

                                                                          For the year ended September 30,
                                                                           1999        1998         1997
                                                                        -----------  ----------   ----------
Cash flows from operating activities:
 Net earnings (loss)                                                    $  (9,539)     $   312    $ (2,037)
 Adjustments to reconcile net earnings (loss) to net cash
   provided by continuing operations:
   Loss from discontinued operations                                         5,611       4,299        4,552
   Depreciation and amortization                                             2,056       1,406        1,071
   Equity interest in loss of affiliate                                        488         506          384
   Deferred income taxes                                                   (2,565)        (96)      (1,368)
   Acquired in-process research and development                              1,750           -            -
   Loss from impairment of assets                                            5,278           -            -
   Changes in working capital of continuing operations, net of
   acquisition:
      Receivables                                                            (141)     (3,739)        (486)
      Inventories                                                              974     (2,213)        (105)
      Accounts payable and accrued expenses                                  3,277         722          258
      Other                                                                    475         886        (136)
                                                                        -----------  ----------   ----------
 Net cash provided by operating activities of continuing operations          7,664       2,083        2,133

Cash flows from investing activities:
 Investment in and loans to affiliate                                        (500)     (2,292)      (3,645)
 Proceeds from sale of building                                              1,192           -            -
 Investment in note receivable                                               (575)     (3,200)
 Payment for acquisition of ProActive                                      (6,350)           -            -
 Payments for property, plant and equipment                                (2,948)     (2,685)        (675)
                                                                        -----------  ----------   ----------
Net cash used in investing activities of continuing operations             (9,181)     (8,177)      (4,320)

Cash flows from financing activities:
 Proceeds from long-term debt                                                5,592       4,201       16,809
 Repayments of long-term debt and capital lease obligations                (3,987)     (2,079)     (21,000)
 Proceeds from sale/leaseback transaction                                        -           -        4,274
 Net proceeds from issuance of common stock for private placement and
   upon exercise of stock options                                            3,548          62            -
 Preferred dividends                                                         (596)       (270)            -
 Issuance of preferred stock                                                     -       7,337            -
                                                                        -----------  ----------   ----------
Net cash provided by financing activities of continuing operations           4,557       9,251           83

Cash flows from discontinued operations:
   Proceeds from sale of Automotive Accessories business unit                    -       1,124            -
   Net cash provided by (used in) operations                               (1,998)     (3,700)        1,425
                                                                        -----------  ----------   ----------

Net cash provided by (used in) discontinued operations                     (1,998)     (2,576)        1,425
                                                                        -----------  ----------   ----------

Net increase (decrease) in cash and cash                                     1,042         581        (679)

Cash and cash equivalents at beginning of period                             1,281         700        1,379
                                                                        -----------  ----------   ----------

Cash and cash equivalents at end of period                               $   2,323    $  1,281      $   700
                                                                        ===========  ==========   ==========

Supplemental disclosure of cash flow information:
 Interest paid                                                           $   1,993    $  2,189      $ 2,275
 Income taxes paid, net of refunds                                       $     503    $     90      $ (424)



The non-cash activity related to the Company's  investing  activity is described
in notes 4, and 14 and 19, non-cash activity related to the Company's  financing
activity is described in note 6 and non-cash  activity  related to the Company's
acquisition is described in note 18.

                     The  accompanying  notes  are an  integral  part  of  these statements.

</TABLE>


                                       23
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 1. Summary of Operations
-----------------------------

Williams  Controls,  Inc,  including  its  wholly-owned  subsidiaries,  Williams
Controls Industries, Inc. ("Williams");  Aptek Williams, Inc. ("Aptek"); Premier
Plastic   Technologies,   Inc.  ("PPT");   ProActive   Acquisition   Corporation
("ProActive");  Williams Automotive,  Inc.; GeoFocus,  Inc.  ("GeoFocus");  NESC
Williams, Inc. ("NESC"); Williams Technologies, Inc. ("Technologies");  Williams
World Trade, Inc. ("WWT");  Kenco/Williams,  Inc. ("Kenco");  Techwood Williams,
Inc. ("TWI");  Agrotec Williams, Inc. ("Agrotec") and its 80% owned subsidiaries
Hardee Williams,  Inc. ("Hardee") and Waccamaw Wheel Williams, Inc. ("Waccamaw")
is herein referred to as the "Company" or  "Registrant".  The  subsidiaries  are
detailed as follows:

Vehicle Components
------------------

Williams  Controls  Industries,   Inc.:  Manufactures  vehicle  components  sold
primarily in the transportation industry.


ProActive Acquisition Corporation:  Conducts research and development activities
related to adjustable foot pedals and manufactures adjustable pedal systems.

Premier Plastic  Technologies,  Inc.:  Manufactures  plastic  components for the
automotive industry and manufactures  prototype and production molds using rapid
prototyping processes.


NESC  Williams,  Inc.:  Installs  conversion  kits  to  allow  vehicles  to  use
compressed natural gas and provides natural gas well metering services.


Williams  Automotive,  Inc.:  Markets the Company's  products to the  automotive
industry.


Williams  Technologies,  Inc.:  Supports  all  subsidiaries  of the  Company  by
providing   research  and   development   and  developing   strategic   business
relationships to promote "technology partnering."


Williams  World Trade,  Inc.:  Located in Kuala  Lumpur,  Malaysia,  WWT manages
foreign  sourcing for  subsidiaries  of the Company,  affiliates and third party
customers. A significant portion of WWT's revenues are derived from Ajay Sports,
Inc., an affiliate.


Electrical Components and GPS
-----------------------------

Aptek  Williams,  Inc.:  Develops and  produces  sensors,  microcircuits,  cable
assemblies  and other  electronic  products for the  telecommunications  and the
transportation  industry,  and conducts  research and development  activities to
develop commercial  applications of sensor related products for the subsidiaries
of the Company.


GeoFocus,  Inc.: Develops train tracking and cyber-farming  systems using global
positioning systems ("GPS") and geographical information systems ("GIS").


Agricultural Equipment
----------------------

The subsidiaries  comprising the Agricultural  Equipment segment are reported as
discontinued operations.

Agrotec Williams,  Inc.:  Manufactures  spraying  equipment for the professional
lawn care and nursery and pest control industries.

Hardee Williams,  Inc.: Manufactures equipment used in farming, highway and park
maintenance.

Waccamaw Wheel Williams,  Inc.:  Manufactures solid rubber tail wheels and other
rubber  products,  used on agricultural  equipment,  from recycled truck and bus
tires.


                                       24
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Techwood Williams,  Inc.:  Manufactured and distributed commercial wood chippers
used in landscaping  and farming.  Techwood ceased  manufacturing  operations in
fiscal 1997.


Automotive Accessories
----------------------
Kenco/Williams,  Inc.: Manufactures,  assembles,  packages and distributes truck
and auto accessories for the after market parts industries. Kenco is reported as
a discontinued operation.


Note 2. Significant Accounting Policies
---------------------------------------

Principles of Consolidation - The consolidated  financial statements include all
of the accounts of Williams Controls,  Inc. and its majority owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents - All short-term highly liquid  investments  purchased
with  maturity  at purchase of three  months or less are  considered  to be cash
equivalents.

Inventories  -  Inventories  are  valued at the lower of  standard  cost,  which
approximates actual cost, or market.

Property,  Plant and Equipment - Land, buildings,  equipment and improvements to
existing  facilities are recorded at cost.  Maintenance and repairs are expensed
as incurred.  Depreciation has been computed using the straight-line method over
the estimated useful lives of property and equipment as follows:  buildings 31.5
years, furniture,  machinery and equipment 3 to 12 years. Capitalized leases are
amortized  using the same method over the shorter of the estimated  useful lives
or the lease term.

Goodwill and Intangible Assets - Goodwill, the excess of cost over net assets of
acquired  companies,  is being  amortized  using the  straight-line  method over
periods from 15 to 40 years.  At each balance  sheet date,  management  assesses
whether there has been an impairment in the carrying  value of cost in excess of
net assets of businesses acquired,  primarily by comparing current and projected
sales,  operating income and annual cash flows, on an undiscounted  basis,  with
the related annual  amortization  expenses as well as considering  the equity of
such companies.  Other intangible assets includes developed  technology which is
being  amortized on a straight line basis over the estimated  useful life of the
asset,  or seven years.  In addition,  intangible  assets  include the cost of a
patent license  agreement which is being amortized on a straight line basis over
the shorter of the legal or estimated useful life of the asset,  which is eleven
years.


                                       25
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Concentration of Risk - The Company invests a portion of its excess cash in debt
instruments  of  financial  institutions  with  strong  credit  ratings  and has
established  guidelines relative to diversification and maturities that maintain
safety and  liquidity.  The Company has not  experienced  any losses on its cash
equivalents.

The Company sells its products to customers in diversified industries worldwide;
however,  approximately  95% of its  sales  from  continuing  operations  are to
customers in the vehicle component  segment.  Approximately 63% of the Company's
sales from continuing operations are electronic throttle controls ("ETC").

For the years ended  September 30, 1999, 1998 and 1997,  Freightliner  accounted
for 27%, 21% and 16%,  Navistar  accounted for 15%, 16% and 16%, Volvo accounted
for 8%, 9% and 8% and General  Motors  accounted  for 5%, 3% and 0% of net sales
from continuing operations, respectively.  Approximately 20%, 15% and 14% of net
sales from continuing  operations in fiscal 1999,  1998 and 1997,  respectively,
were to customers outside of the United States,  primarily in Canada, Mexico and
Sweden,  and, to a lesser extent,  in Europe,  South America and Australia.  See
note 15 of Notes to Consolidated Financial Statements.

Debt  Issuance  Costs - Costs  incurred in the  issuance of debt  financing  are
amortized over the term of the debt agreement.

Product Warranty - The Company provides a warranty covering defects arising from
products sold.  The warranty is limited to a specified  time period,  mileage or
hours of use, and varies by product and application.  The Company has provided a
reserve,  which in the opinion of  management is adequate to cover such warranty
costs.

Research and Development  Costs - Research and development costs are expensed as
incurred.

Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax  consequences  attributable to differences  between the 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.

Post-retirement  Benefits - Statement of Financial Accounting Standards ("SFAS")
No.  106,  "Employers'  Accounting  for  Post  Retirement  Benefits  Other  than
Pensions"  requires the Company to accrue  retiree  insurance  benefits over the
period  in which  employees  become  eligible  for such  benefits.  The  Company
implemented  SFAS No. 106 by amortizing  the transition  obligation  over twenty
years.

Earnings (loss) Per Share - Basic earnings per share ("EPS") and diluted EPS are
computed  using the methods  prescribed  by Statement  of  Financial  Accounting
Standards  No. 128,  "Earnings  Per Share".  Basic EPS is  calculated  using the
weighted-average  number of common shares outstanding for the period and diluted
EPS is computed using the weighted-average  number of common shares and dilutive
common equivalent shares outstanding.


                                       26
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
<S>                                      <C>            <C>         <C>                <C>           <C>         <C>


                                                      Year Ended                                   Year Ended
                                                   September 30, 1999                           September 30, 1998
                                          -----------------------------------          -----------------------------------
                                                                    Per Share                                    Per Share
                                          Earnings       Shares       Amount           Earnings       Shares       Amount
                                          --------       ------     ---------          --------       ------     ---------
Earnings (loss) from continuing
  operations                              $ (3,928)                                     $ 4,611
Less - Preferred stock dividends              (596)                                        (270)
Basic EPS-
  Earnings  (loss) allocable to
  common shareholders                       (4,524)    18,603,057     $ (0.24)            4,341     17,922,558      $ 0.24
Effect of dilutive securities-
  Stock options and warrants                     -              -                             -        564,766
  Convertible preferred stock                    -              -                           270      1,321,136
                                          -----------------------------------          -----------------------------------
Diluted EPS-
  Earnings  (loss) allocable to
  common shareholders                     $ (4,524)    18,603,057     $ (0.24)          $ 4,611     19,808,460      $ 0.23
                                          =========    ==========     ========          =======     ==========      =======

                                                       Year Ended
                                                   September 30, 1997
                                          -----------------------------------
                                                                    Per Share
                                          Earnings       Shares       Amount
                                          --------       ------     ---------
Earnings from continuing
  operations                               $ 2,515
Less - Preferred stock dividends                 -
Basic EPS-
  Earnings allocable to common
  shareholders                               2,515     17,656,900      $ 0.14
Effect of dilutive securities-
  Stock options and warrants                     -        344,899
  Convertible preferred stock                    -              -
                                          -----------------------------------
Diluted EPS-
  Earnings allocable to common
  shareholders                             $ 2,515     18,001,799      $ 0.14
                                          =========    ==========     ========
</TABLE>


At  September  30,  1999,  1998 and 1997,  the Company had options and  warrants
covering  3,548,797,  582,236 and 336,600 shares,  respectively of the Company's
common stock outstanding that were not considered in the respective  diluted EPS
calculations since they would have been antidilutive. In 1999, conversion of the
preferred  shares  would  have  been  anti-dilutive  and,  therefore,   was  not
considered in the computation of diluted earnings per share.


                                       27
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Reclassifications  - Certain  amounts  previously  reported in the 1998 and 1997
financial  statements  have  been  reclassified  to  conform  to 1999  financial
statement classifications.

Fair Value of  Financial  Instruments  - The  carrying  values of the  Company's
current assets and liabilities  approximate fair values primarily because of the
short maturity of these instruments.  The fair values of the Company's long-term
debt  approximated  its  carrying  values  based on  borrowing  rates  currently
available  to the  Company  for loans  with  similar  terms.  The fair  value of
preferred stock and receivables from an affiliate is not practicable to estimate
due to the related party nature of the underlying transaction.

Stock-Based   Compensation  -  SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation,"  ("SFAS 123") allows  companies to choose  whether to account for
stock-based  compensation on a fair value method, or to continue  accounting for
such  compensation  under the method  prescribed in Accounting  Principles Board
Opinion No. 25,  "Accounting  for Stock  Issued to  Employees"  ("APB 25").  The
Company has chosen to continue to account for stock-based compensation using APB
25 (see Note 12).

Recent FASB Pronouncements - In June 1999 the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 137"). SFAS 137 is an amendment to SFAS 133,  "Accounting for
Derivative  Instruments and Hedging Activities." SFAS 137 establishes accounting
and reporting  standards for all derivative  instruments.  SFAS 137 is effective
for fiscal years  beginning  after June 15, 2000.  The Company does not have any
derivative  instruments and  accordingly,  the adoption of SFAS 137 will have no
impact on the Company's financial position or results of operations.

Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the 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.



Note 3. Inventories
-------------------

Inventories consist of the following at September 30:

                              1999         1998
                            --------     --------
     Raw material           $  6,867     $  5,152
     Work in progress            697        1,333
     Finished goods            2,264        4,208
                            --------     --------
                            $  9,828     $ 10,693
                            ========     ========


Finished goods include component parts and finished product ready for shipment.




                                       28
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 4. Investment in and Receivables from Affiliate
----------------------------------------------------

At September 30, 1999 the Company had an investment in and notes receivable from
Ajay  Sports,  Inc.  ("Ajay")  in the  amount of $6,652,  including  a $500 note
receivable  reflected  as a  reduction  in the  Company's  shareholders'  equity
relating to the  issuance of 206,719  shares of the  Company's  common  stock to
Ajay. Ajay  manufactures  and distributes  golf  accessories and outdoor leisure
furniture primarily to retailers in the United States and during 1999, purchased
ProGolf Discount,  a franchisor of golf equipment and accessories retail stores.
The Company has  manufacturing  rights in certain Ajay  facilities  through 2002
under a joint venture agreement.

The Company's  investment in and note receivable from affiliate at September 30,
1999 is comprised of an investment in common and preferred  stock of Ajay in the
amount of $4,565 and a secured  note  receivable  in the  amount of  $1,587.  In
addition,  the Company could be obligated to advance to Ajay up to an additional
$1,515 under the terms of an  intercreditor  agreement. In August 1999, $500 was
paid  to  a  previous  lender,  on  behalf  of  Ajay,  under  the  terms  of  an
intercreditor  agreement and is reflected as an increase in the note  receivable
from  affiliate.  The  chairman of the Company has  provided a guarantee  of the
investments  in and loans to Ajay.  Also,  at September 30, 1999 the Company had
receivables of $245 from Ajay for unpaid  interest and fees incurred from May to
September,  1999 which is included  in trade and other  accounts  receivable  at
September 30, 1999. At September 30, 1998, the Company had an investment in Ajay
preferred and common stock in the amount of $5,000 and $53,  respectively  and a
secured note receivable from Ajay in the amount of $1,087.

Prior to July 11,  1997,  the  Company  had  guaranteed  Ajay's  $13,500  credit
facility and charged Ajay a fee of 1/2 of 1% per annum on the  outstanding  loan
amount for providing  this  guaranty.  From July 11, 1997 through June 30, 1998,
the Company and Ajay had a joint and several loan  obligation to a bank. On June
30,  1998,  the  Company   restructured   its  investment  in  Ajay  (the  "Ajay
Restructuring").  The  objective  of the Ajay  Restructuring  is to separate the
Company's and Ajay's  financing,  eliminate Ajay's dependency on the Company for
capital and provide Ajay with adequate  working  capital to grow its  operations
and improve shareholder value which would benefit the Company. The restructuring
provides Ajay three years to improve  shareholder  value at which time the notes
receivable  become due and payable.  No dividends are accrued and payable on the
preferred  stock  through July 31,  2001.  The  preferred  stock  dividend  rate
increases  to an  annual  rate of 17% in 2001 and 24% in 2002,  rates  which the
Company  believes would require Ajay to raise capital from new sources to redeem
the preferred stock.

As a  result  of  the  Ajay  Restructuring,  the  bank  provided  separate  loan
facilities  to the  Company  and  Ajay.  As  consideration  to the  bank for the
separate loan facilities, the Company provided Ajay $2,000 in additional capital
during 1998 which included the purchase of Ajay notes payable of $948 previously
provided by affiliated  parties of the Company,  and agreed to convert $5,000 of
advances  to  Ajay  into  a new  cumulative  convertible  preferred  stock.  The
preferred stock is convertible into 3,333,333 shares of Ajay common stock.

The  secured  promissory  notes  bear an  annual  interest  rate of 16%  payable
monthly. In addition,  Ajay has agreed to pay the Company annual  administrative
fees of $90  and a  management  fee for  sourcing  products  overseas in the
amount of $80 annually.

The  Company  owns  686,274  shares of  common  stock in Ajay  which  represents
approximately 16% of Ajay's  outstanding common stock at September 30, 1999. The
investment  is recorded  on the equity  method of  accounting  due to the common
ownership of Ajay and the Company by the chairman of the Company who is also the
chairman of Ajay. For the three years ended  September 30, 1999,  1998 and 1997,
the Company  reported  losses on its  investment  in Ajay in the amount of $488,
$506 and $384,   respectively.  In addition, the company has options to purchase
1,851,813 shares of common stock at an exercise price of $1.08. During 1999, the
investment in Ajay common stock was reduced to zero in the Consolidated  Balance
Sheet as a result  of the  Company's  equity  interest  in Ajay's  losses  since
acquisition.  During the year ended September 30, 1999, the Company's investment
in Ajay's  preferred  stock was also  reduced by $435 as a result of  continuing
recognition of the Company's equity interest in Ajay's losses.

                                       29
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Based upon the closing bid price,  the market  value of the  investment  in Ajay
common shares was approximately $558 at September 30, 1999.

Following is a summary of condensed unaudited  financial  information of Ajay as
of and for the twelve months ended September 30, 1999, 1998 and 1997:

                                             1999          1998         1997
                                         (unaudited)   (unaudited)   (unaudited)
                                         -----------   -----------   -----------

Current assets                            $  9,193      $  9,584       $ 14,264
Other assets                                15,243         4,212          4,449
                                         -----------   -----------   -----------
                                          $ 24,436      $ 13,796       $ 18,713
                                         ===========   ===========   ===========

Current liabilities                       $  4,949      $  2,030       $  5,031
Other liabilities                           18,128         8,003         12,061
Common and preferred shareholders' equity    1,359         3,763          1,621
                                         -----------   -----------   -----------
                                          $ 24,436      $ 13,796       $ 18,713
                                         ===========   ===========   ===========

Net sales                                 $ 13,629      $ 27,094       $ 29,063
                                         ===========   ===========   ===========
Gross margin                              $  1,717      $  3,581       $  3,772
                                         ===========   ===========   ===========
Loss before income tax benefit            $ (2,713)     $ (2,858)      $ (2,133)
                                         ===========   ===========   ===========

At  September  30,  1999,  Ajay  had   approximately   4,205,000  common  shares
outstanding.  In addition to the  Company's  options and  convertible  preferred
stock at  September  30,  1999,  Ajay had  outstanding  preferred  stock that is
convertible  to  approximately   1,686,000  shares  of  Ajay  common  stock  and
outstanding  options and warrants to purchase  approximately  834,000  shares of
Ajay common stock at prices  ranging from $1.08 to $6.00 per share  (unaudited).
An officer of Ajay provided  management services to the company as an officer of
the  Company.  Ajay was  reimbursed  approximately  $114 in total for his fiscal
1999,  1998 and 1997 time and  services.  The  Company  accepted  the  officer's
resignation in December 1998.


Note 5. Goodwill and Intangible Assets
--------------------------------------

At September 30, goodwill and intangible assets consist of the following:

                                            1999           1998
                                         ----------     ----------
Goodwill                                  $  2,955       $    793
Developed technology                         1,820              -
Patent and patent license agreement          1,439            200
Less accumulated amortization                 (450)          (277)
                                         ----------     ----------
                                          $  5,764       $    716
                                         ==========     ==========


                                       30
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Amortization  expense on intangible  assets was $173,  $85 and $85 for the years
ended September 30, 1999, 1998 and 1997, respectively.


Note 6. Financing Arrangements
------------------------------

Debt - On June 30, 1998,  the Company  restructured  its credit  facility with a
bank (the "Bank") to consist of a revolving credit facility of up to $16,500,  a
$3,100 term loan and a $2,700 real estate loan.  In December  1998,  the Company
increased its term loan by $2,500. Under the revolver, the Company can borrow up
to $16,500 based upon a borrowing base  availability  calculated using specified
percentages of eligible  accounts  receivable and inventory.  The revolver bears
interest at the Bank's prime rate plus .50% (8.25% at September  30,  1999.) The
Real  Estate,  Term Loan I, and Term Loan II bear  interest at the Bank's  prime
rate plus .75%.  At the  Company's  option,  the Company may borrow funds at the
London  InterBank  Offering  Rate  ("Libor")  plus  3.00%.  The loans  under the
revolving credit facility mature on July 11, 2001. The Real Estate loan is being
amortized  over twenty years and the Term Loan I is being  amortized  over seven
years with all  remaining  principal  outstanding  due at July 11, 2001. In July
1999,  The  Company  borrowed  $2,500 from the Bank under a new term loan ("Term
Loan  III")  under the  existing  facility.  Interest  on this  term note  bears
interest at the Bank's prime rate plus 1.25%. This term note matures on February
1,  2000.  All loans  are  secured  by  substantially  all of the  assets of the
Company.

The loan agreement  prohibits payment of dividends by the Company except for the
Series A Preferred  dividend,  and  requires  the  Company to  maintain  minimum
working  capital of $12,000  and minimum  tangible  net worth,  as  defined,  of
$18,000.  The loan also  prohibits  additional  indebtedness  and  common  stock
repurchases except for through the use of proceeds from stock options exercised,
and restricts  capital  expenditures  to an amount not to exceed $10,500 for the
two years ended September 30, 1999 and not to exceed $2,500 annually thereafter.
In addition,  the loan limits  incremental  operating lease  obligations to $600
annually.  Fees under the loan agreement  include an unused revolver fee of .25%
and a prepayment  penalty fee declining from 3% in 1998 to .5% in the year 2001.
The  prepayment  fee is waived if the loan is repaid with proceeds from the sale
of assets or is refinanced with an affiliate of the Bank. At September 30, 1999,
the Bank waived  compliance with all financial  covenants as the Company was out
of compliance at September 30, 1999. The waivers were obtained in a manner which
allows the Company's debt to be classified as current and long-term based on the
payment terms of the loans at September 30, 1999.

From July 11, 1997 through  June 30, 1998,  the Company and Ajay had a joint and
several  loan with the  Bank.  Under the  restructured  facility,  all joint and
several  liability,  cross  collateral  agreements and guarantees of the Company
with  respect  to  the  Ajay  portion  of  the  credit  facility  prior  to  the
restructuring  have  been  terminated.  In  consideration  to the  Bank  for the
restructured  facility,  the Company agreed to invest $2,000 in Ajay and convert
$5,000 of advances to Ajay into preferred stock.

Prior to July 11, 1997,  the Company had guaranteed the bank debt of Ajay with a
previous  lender  which debt was in default  under  Ajay's loan  agreement.  The
Company and Ajay refinanced their bank debt on July 11, 1997 with the Bank under
a $34,088 three-year  revolving joint and several liability credit and term loan
agreement.  As a result of a  shortfall  in  Ajay's  available  collateral,  the
previous  lender   provided  bridge   financing  of  $2,340  to  Ajay  under  an
inter-creditor agreement. The bridge loan is to be repaid from any proceeds from
the sale of Kenco,  the sale of other  assets,  from a specified  percentage  of
future Ajay and Company cash flow and from monthly  principal  payments by Ajay.
The balance of the bridge loan was $1,515 at September 30, 1999.


                                       31
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                                <C>                 <C>
The Company's long-term debt consists of the following at  September 30:              1999                1998
                                                                                    --------            --------

Bank  revolving  credit  facility  due  July 11, 2001;   $6,278  bearing            $ 14,278            $ 13,686
interest  at a variable interest rate of 8.25%  at  September  30,  1999
and $8,000 at variable interest rates (7.625% - 7.6875% at September 30,
1999).

Bank  Term  Loan I,  due July 11, 2001,   $276   bearing  interest  at a               3,426               3,011
variable  interest  rate of 8.5%  at  September  30,  1999,  payable  in
monthly  installments  of $60,  and $3,150 at a variable  interest  rate
(7.875% at September 30, 1999) due at maturity.

Bank Term Loan II, due July 11, 2001 bearing  interest at 9.0%,  payable                 709                   -
in monthly  installments  of $71, with  remaining  balance of $69 due at
maturity.

Bank Term Loan III,  due  February 1, 2000,  variable  interest  rate of               2,500                   -
9.5% at September  30,  1999,  payable in monthly  installments  of $139
beginning in November 1999, with remaining  balance due of $2,083 due at
maturity.

Real  Estate  loan,  due July 11, 2001,  variable  interest rate 8.5% at               2,381               2,514
September  30,  1999,  payable  in  monthly  installments  of $11,  with
remaining balance of $2,248 due at maturity.

Unsecured debt, due February 1, 2005,  variable  interest rate (9.25% at                 700                 700
September 30, 1999), interest only, balance due at maturity.

Real Estate loan,  due December 5, 1999,  variable  interest rate (9.25%                 570                 675
at September 30,  1999),  payable in monthly  installments  of $12, with
remaining balance of $546 due at maturity.

Sale and leaseback financing, repaid in December, 1998.                                    -               4,600

Mortgage loan, repaid in July, 1999.                                                       -               1,020

Other                                                                                      5                 251
                                                                                    --------            --------
                                                                                      24,569              26,457
Less current portion                                                                   4,188               1,083
                                                                                    --------            --------
                                                                                    $ 20,381            $ 25,374
                                                                                    ========            ========
</TABLE>

                                      32
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Maturities of long-term debt at September 30, 1999 are as follows:

          2000                $  4,188
          2001                  19,681
          2002                       -
          2003                       -
          2004                       -
       Thereafter                  700
                              --------
                              $ 24,569
                              ========


Capital Leases - The Company has acquired  certain assets,  primarily  machinery
and equipment,  through capital leases. The leases have terms ranging from three
to seven  years,  and are payable in monthly  and  quarterly  installments  with
interest (at rates ranging from 8.8% to 10.5%).

Future  minimum lease payments under capital leases are as follows for the years
ending September 30:

               2000                               $  1,466
               2001                                  1,444
               2002                                  1,498
               2003                                  1,040
               2004                                    721
            Thereafter                                 571
                                                  --------
  Total future minimum lease payments             $  6,740

  Less - Amount representing interest                1,373
                                                  --------
  Present value of future minimum lease payments     5,367
  Less - Current portion                             1,005
                                                  --------
                                                  $  4,362
                                                  ========


During 1999, the Company incurred  additional capital leases of $1,819.  Capital
lease obligations,  all of which were incurred in fiscal 1998, totaled $4,146 at
September  30, 1998 and $334 was  classified  as the current  portion of capital
lease obligations at September 30, 1998.


                                       33
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------


Note 7. Patent License Agreement
--------------------------------

In conjunction  with the acquisition in 1999 of the ProActive Pedals division of
Active Tool &  Manufacturing  Co.,  Inc.,  (Note 18) the Company  entered into a
patent license agreement with a private inventor,  under which the Company holds
an exclusive,  worldwide  license for three  patents  covering  adjustable  foot
pedals. The license agreement remains in effect for the life of the patents. The
Company paid an initial  license fee of $600 and the agreement  requires  yearly
minimum payments of $95 to the inventor for a period of approximately ten years.
Accrued minimum royalties consist of the following at September 30, 1999:


                 Minimum future royalties                  $  1,045

                 Less imputed interest                         (406)
                                                        --------------
                 Present value of payments                      639
                 Less current portion included in
                      Accrued expenses                          (78)
                                                        --------------

                 Long-term portion included in
                     Other Liabilities                     $    561
                                                        ==============


Note 8. Pension Plans
---------------------

The Company maintains two pension plans; one plan covers salaried  employees and
the other plan  covers  the  Company's  hourly  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  accrued over 15 years and  obligations
arising  due to plan  amendments  over the  period  benefited.  The  assets  and
liabilities are adjusted annually based on actuarial results.

<TABLE>
<CAPTION>
<S>                                                 <C>                  <C>            <C>               <C>
                                                         Salaried Employees Plan             Hourly Employees Plan
                                                     -------------------------------     ------------------------------
September 30,                                               1999           1998               1999           1998
                                                     -------------------------------     ------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year                    $ 3,300     $ 2,901              $ 3,792       $ 3,606
Service cost                                                   103         105                  133           129
Interest cost                                                  219         213                  251           266
Actuarial (gain) loss                                           42         203                (313)          (86)
Benefits paid                                                (118)       (122)                (131)         (123)
                                                     -------------------------------     ------------------------------
Benefit obligation at end of year                          $ 3,546     $ 3,300              $ 3,732       $ 3,792
                                                     -------------------------------     ------------------------------

</TABLE>

                                       34
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                          <C>           <C>                  <C>          <C>
                                                        Salaried Employees Plan              Hourly Employees Plan
                                                     -------------------------------     ------------------------------
September 30,                                                    1999         1998                 1999          1998
                                                     -------------------------------     ------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year                 $  2,916     $ 3,091              $ 3,180       $ 3,379
Actual return on plan assets                                        393        (53)                  559         (155)
Employer contribution                                                 -           -                    -            80
Plan participants' contributions                                      -           -                    -             -
Benefits paid                                                     (118)       (122)                (131)         (124)
                                                     -------------------------------     ------------------------------
Fair value of plan assets at end of year                       $  3,191     $ 2,916              $ 3,608       $ 3,180
                                                     -------------------------------     ------------------------------
Funded status                                                     (355)       (384)                (124)         (612)
Unrecognized actuarial (gain) loss                                (114)         302                (123)           476
Unrecognized prior service cost                                     209       (126)                  292           333
                                                     -------------------------------     ------------------------------
Net amount recognized                                          $  (260)     $ (208)              $    45       $   197
                                                     -------------------------------     ------------------------------

Amounts recognized in the statement of
financial position consist of:
         Prepaid benefit cost                                  $      -     $     -              $    45         $ 197
         Accrued benefit liability                                (260)       (208)                 (74)         (631)
         Intangible asset                                             -           -                   74           333
         Accumulated other pretax comprehensive income                -           -                    -           298
                                                     -------------------------------     ------------------------------
Net amount recognized                                          $  (260)     $ (208)              $    45         $ 197
                                                     -------------------------------     ------------------------------

Weighted-average assumptions as of September
30,                                                        1999            1998               1999           1998
                                                     -------------------------------     ------------------------------
Discount rate                                              7.75%           6.75%              7.75%          6.75%
Expected return on plan assets                             9.00            9.00               9.00           9.00
Rate of compensation increase                              4.00            4.00                  -              -


                                                          Salaried Employees Plan             Hourly Employees Plan
                                                     ---------------------------------    -----------------------------
Components of net periodic benefit cost
for the years ended September 30:                          1999       1998       1997         1999      1998      1997
                                                     ---------------------------------    -----------------------------
Service Cost                                              $ 103      $ 105      $ 115        $ 133     $ 129     $ 112
Interest Cost                                               219        213        210          251       266       242
Expected return on plan assets                            (257)      (273)      (233)        (280)     (307)     (244)
Amortization of prior service cost                         (12)       (12)       (12)           41        41        33
Amortization of (gain) loss                                   -          -          -            7         -         -
                                                     ---------------------------------    -----------------------------
Net periodic benefit cost                                 $  53      $  33      $  80        $ 152     $ 129     $ 143
                                                     ---------------------------------    -----------------------------

</TABLE>

The projected benefit obligation,  accumulated benefit obligation,  and the fair
value of plan  assets for the hourly  employees  plan with  accumulated  benefit
obligations   in  excess  of  plan  assets  were  $3,732,   $3,637  and  $3,608,
respectively  as  of  September  30,  1999  and  $3,792,   $3,614   and  $3,180,
respectively as of September 30, 1998.


                                       35
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 9. Property, Plant and Equipment
-------------------------------------

At September 30, 1999 and 1998,  property,  plant and  equipment  consist of the
following:

                                                      1999          1998
                                                      ----          ----
Land and land improvements                         $  2,499      $  2,695
Buildings                                             6,241         8,748
Machinery and equipment                              15,966        12,099
Office furniture and equipment                        4,368         3,255
                                                   ---------     ---------
                                                     29,074        26,797
Less accumulated depreciation                        (8,299)       (6,784)
                                                   ---------     ---------
                                                   $ 20,775      $ 20,013
                                                   =========     =========

Net  property,  plant and equipment of $20,775 and $20,013 at September 30, 1999
and  1998,  respectively,  excludes  certain  machinery,  equipment  and  office
equipment held for  disposition.  Capital leases for machinery and equipment and
office  furniture  and  equipment  included  above  were  $6,490  and  $5,200 at
September 30, 1999 and 1998,  respectively.  Accumulated depreciation on capital
leases was $673 and $542 at September 30, 1999 and 1998, respectively.


Note 10. Impairment of Assets
-----------------------------

During the year ended  September  30, 1999 the Company  recognized a $5,278 loss
from the impairment of assets related to Kenco, the Company's former  Automotive
Accessories business unit, consisting of the following items:

       Impairment of non-voting preferred stock and notes and
           accounts receivable                                     $4,655
       Impairment of property                                         623
                                                                   ------
       Total loss from impairment of assets                        $5,278
                                                                   ======

At the date the impairment loss was taken, the Company had non-voting  preferred
stock and notes and  accounts  receivable  related to Kenco of $797 and  $3,858.
Since the sale of the operating assets of Kenco to Kenco Products,  Inc. ("KPI")
in 1998, KPI has reported  operating  losses and experienced cash flow and other
financing  difficulties.  In addition, KPI has not been able to make payments on
its notes and accounts payable to the Company. KPI's bank has notified KPI it is
in  default  under  its loan  agreement.  In  consideration  of this  and  after
evaluation of the business prospects of KPI and its need for additional capital,
the Company  determined  it was not probable  that it would recover the value of
the preferred  stock and notes and accounts  receivable,  and an impairment loss
totaling $4,655 was recorded for the year ended September 30, 1999.

In addition, the Company recorded an impairment loss related to certain property
retained from the Kenco sale. The majority of the  impairment  loss for property
related to the sale in July 1999 of a building  and land which were being leased
by KPI from the Company. This property was sold, and after retiring $891 of debt
secured by the property,  resulted in cash  proceeds of $1,192.  The proceeds to
the Company,  after  deducting  approximately  $692 of expenses to assist in the
relocation  of KPI and to ready the  building  for sale were paid to a  previous
lender, on behalf of an affiliated company,  under the terms of an intercreditor
agreement.  The estimated loss on the sale of land and building,  which has been
recorded in loss from impairment of assets, is $528.

                                       36
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 11. Income Tax Expense (Benefit)
-------------------------------------

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

                                     1999           1998           1997
                                     ----           ----           ----
    Continuing operations:
          Current                  $ 1,078        $ 2,462        $ 3,610
          Deferred                  (2,565)           (96)        (1,368)
                                  ---------       --------       --------
                                    (1,487)         2,366          2,242

     Discontinued operations        (3,189)        (2,932)        (3,208)
                                  ---------       --------       --------
                                  $ (4,676)       $  (566)       $  (966)
                                  =========       ========       ========


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

                                     1999           1998           1997
                                     ----           ----           ----
     Statutory federal income
         tax rate                   (34.0)          34.0           34.0
     State taxes, net of federal
         income tax benefit          (4.0)           4.0            4.0
     Credits for state income
         tax refunds                    -           (8.4)             -
     Effect of change in valuation
         allowance                    8.8            3.2            7.4
     Other                            1.7            1.1            1.7
                                  ---------       --------       --------
                                    (27.5)          33.9           47.1
                                  =========       ========       ========




                                       37
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities  at September  30, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
<S>                                                                             <C>           <C>

                                                                                  1999          1998
Deferred tax assets:                                                              ----          ----
Inventories, due to obsolescence reserve and additional
  costs inventoried for tax purposes pursuant to the
  Tax Reform Act of 1986                                                         $   253       $   203
Warranty reserves                                                                    550           313
Accrual for compensated absences                                                     130           125
Accrual for retiree medical benefits                                                 689           522
Accounts receivable reserves                                                         225           117
Estimated loss from writedown of assets of automotive
  accessories segment                                                              1,824           288
Estimated loss on disposal of agriculture equipment segment                        3,105           978
Equity interest in loss on affiliate                                                 705           517
Tax gain on sale/leaseback                                                           628           628
In-process research and development                                                  672             -
Accrued other reserves                                                               249            12
Pension liability adjustment                                                           -           114
State net operating loss carryforwards                                             2,452           873
                                                                                 -------       -------

Total gross deferred tax assets                                                   11,482         4,690
Less valuation allowance                                                           2,927           840
                                                                                 -------       -------
Net deferred tax assets                                                            8,555         3,850
                                                                                 -------       -------

Deferred tax liabilities:
   Plant and equipment, principally due to differences
    in depreciation and amortization                                               1,659         1,588
Intangible asset recorded for books                                                    -            58
                                                                                 -------       -------

Net deferred income tax asset                                                    $ 6,896       $ 2,204
                                                                                 =======       =======

Current deferred income tax assets                                               $ 3,871       $ 2,037
Long-term deferred income tax assets                                               4,684         1,813
Long-term deferred income tax liabilities                                         (1,659)       (1,646)
                                                                                 -------       -------
                                                                                 $ 6,896       $ 2,204
                                                                                 =======       =======
</TABLE>


At  September  30,  1999,  the  Company has  approximately  $35,000 of state net
operating  loss carry  forwards,  which are  available to the Company in certain
state tax  jurisdictions  and expire in 2006 through 2013. During the year ended
September  30, 1999,  the Company  increased  its  valuation  allowance  against
certain state net  operating  loss and capital loss  carry-forwards  it does not
expect to utilize.


                                       38
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 12. Shareholders' Equity
-----------------------------

Common  Stock - In July,  1999,  the Company  completed a private  placement  of
1,244,065  shares of common  stock of the Company and  received  net proceeds of
$3,379.  In addition,  87,084 shares of the Company's common stock was issued in
lieu of the  underwriting  fee,  for a  total  of  1,331,149  shares  issued  in
conjunction with the offering.  For every share issued in the private placement,
the purchasing  shareholders  received warrants to purchase .35 common shares or
465,902 additional shares of common stock, at $3.125 per share. In addition, for
every share issued to the placement agent, the placement agent received warrants
to purchase .35 common shares,  or 87,084  additional shares of common stock, at
$3.30 per share.  The warrants issued may be exercised at any time over the next
five  years.  The fair  value of such  warrants  and the  shares  in lieu of the
underwriting  fee,  totaling  $1,118,  is  included in "Common  stock  issued in
private placement" with a corresponding charge to "Equity issuance costs" in the
accompanying Consolidated Statements of Shareholders' Equity.

Preferred Stock - In April,  1998, the Company  completed a private placement of
80,000 shares of Series A  convertible  redeemable  preferred  stock at $100 per
share,  or $8,000 in gross  proceeds and  received  net proceeds of $7,337.  The
preferred stock bears a dividend rate of 7.5%, which is payable  quarterly,  and
is  convertible  at the  option  of the  holder  into  2,909,091  shares  of the
Company's  common  stock.  The  preferred  stock is  redeemable at the Company's
option  anytime  after April 21, 2001.  The preferred  stock is not  mandatorily
redeemable. In addition, the Company can force conversion of the preferred stock
into common shares if the  Company's  common stock trades at or above $4.125 for
twenty out of thirty consecutive trading days. Holders of the Series A preferred
stock are entitled to a number of votes equal to those they would have  assuming
conversion into common stock, without taking into account fractional shares.

Commencing with the quarterly period beginning July 1, 2001, the annual dividend
rate will  increase  each  quarter by 2.5% up to a maximum  dividend  of 24% per
annum.  The Company used the proceeds of the offering to provide  $3,200 of debt
financing  to the  purchaser of the  Portland,  Oregon  manufacturing  facility,
repayment of a bank term loan of $667 and an investment of $1,500 in Ajay.
The remaining balance was used for general working capital purposes.

Stock  Options and Warrants - The Company has issued stock  options and warrants
at exercise  prices ranging from $.41 - 3.63 per share,  the market value at the
date of issuance.  Any  remaining  unexercised  options and  warrants  expire in
fiscal  2000.  The stock  option  activity  during the periods  indicated  is as
follows:

                                                   Shares
                                                 Subject to
                                                   Options      Option Prices
                                                 ----------     -------------
     Outstanding at September 30, 1996             340,000       $0.41 - 3.63

     Granted                                             -                  -
     Exercised                                           -                  -
     Canceled                                            -                  -
                                               --------------------------------
     Outstanding at September 30, 1997             340,000        0.41 - 3.63

     Granted                                             -                  -
     Exercised                                    (150,000)              0.41
     Canceled                                            -                  -
                                               --------------------------------
     Outstanding at September 30, 1998             190,000        0.41 - 3.63

     Granted                                             -                  -
     Exercised                                    (150,000)              0.41
     Canceled                                      (10,000)                 -
                                               --------------------------------
     Outstanding at September 30, 1999              30,000              $3.63
                                               ================================



                                       39
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

In addition to the stock  options  noted  above,  the Company has two  qualified
stock option  plans.  The Company  adopted the 1993 Stock Option Plan ("the 1993
Plan") which reserves an aggregate of 1,500,000  shares of the Company's  common
stock for the  issuance  of stock  options  which may be granted  to  employees,
officers and directors of and consultants to the Company. Under the terms of the
1993 Plan, the Company may grant  "incentive  stock  options" or  "non-qualified
options"  at not less than the fair market  value on the date of grant.  Options
granted  under the 1993 Plan are  exercisable  as to 25  percent  of the  shares
covered thereby  commencing six months after the earlier of the date of grant or
the date of employment, and as to an additional 25%, cumulatively, on the first,
second and third  anniversaries of the date of grant, and expire ten years after
the date of grant. In each of January,  1998 and in February,  1999, the Company
reserved an additional  1,500,000  shares of the Company's  common stock for the
issuance of stock  options  under the 1993 Plan.  At  September  30,  1999,  the
Company had 1,767,825 shares available for future grants.

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

                                       Shares         Shares
                                    Available for    Subject to
                                        Grant         Options      Option Prices
                                    -------------    ----------    -------------
Outstanding at September 30, 1996     1,100,000          400,000    $1.94 - 3.63

Granted                              (1,078,800)       1,078,800     1.94 - 2.63
Exercised                                     -                -               -
Canceled                                366,925         (366,925)    1.94 - 3.63
                                    --------------------------------------------
Outstanding at September 30, 1997       388,125        1,111,875     1.94 - 3.63

Additional shares reserved            1,500,000                -               -
Granted                              (1,183,887)       1,183,887     2.31 - 3.00
Exercised                                     -                -               -
Canceled                                117,975         (117,975)    1.94 - 2.94
                                    --------------------------------------------
Outstanding at September 30, 1998       822,213        2,177,787     1.94 - 3.63

Additional shares reserved            1,500,000                -               -
Granted                                (744,000)         744,000     2.06 - 3.00
Exercised                                51,750          (51,750)    1.94 - 2.50
Canceled                                137,862         (137,862)    1.94 - 2.94
                                    --------------------------------------------
Outstanding at September 30, 1999     1,767,825        2,732,175    $1.94 - 3.00
                                    ============================================


During 1996 the  shareholders of the Company  approved a stock option plan which
reserves an aggregate of 200,000 shares of the Company's stock for  non-employee
Directors of the Company (the "1995 Plan"). The 1995 Plan provides for automatic
granting  of 10,000  options to each  non-employee  director of the Company at a
price  equal to the market  value on the date of grant  which is the date of the
annual shareholders' meeting each year,  exercisable for 10 years after the date
of the grant.  These options are  exercisable as to 25% of the shares thereby on
the date of grant and as to an additional 25%, cumulatively on the first, second
and third  anniversaries  of the date of grant. At September 30, 1999 there were
30,000 shares available for grant under the 1995 Plan.


                                       40
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

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

                                       Shares          Shares
                                    Available for    Subject to
                                       Grant          Options      Option Prices
                                    -------------    ----------    -------------
Outstanding at September 30, 1996      140,000          60,000      $3.63 - 3.66

Granted                                (30,000)         30,000              2.66
Exercised                                    -               -                 -
Canceled                                     -               -                 -
                                    --------------------------------------------
Outstanding at September 30, 1997      110,000          90,000       2.66 - 3.66

Granted                                (30,000)         30,000              2.44
Exercised                                    -               -                 -
Canceled                                     -               -                 -
                                    --------------------------------------------
Outstanding at September 30, 1998       80,000         120,000       2.44 - 3.66

Granted                                (50,000)         50,000              2.68
Exercised                                    -               -                 -
Canceled                                     -               -                 -
                                    --------------------------------------------
Outstanding at September 30, 1999       30,000         170,000      $2.44 - 3.66
                                    ============================================


Statement of Financial Accounting Standards No. 123
---------------------------------------------------

During 1995,  the  Financial  Accounting  Standards  Board issued SFAS 123 which
defines a fair value based method of accounting  for employee  stock options and
similar equity  instruments  and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans.  However, it also
allows an entity to continue to measure  compensation cost for those plans using
the method of accounting  prescribed by APB 25. Entities electing to continue to
use the  accounting  treatment in APB 25 must make pro forma  disclosures of net
earnings  (loss) and, if  presented,  earnings  per share,  as if the fair value
based method of accounting defined in SFAS 123 had been adopted.

The Company has elected to account for its stock-based  compensation plans under
APB 25; however,  the company has computed,  for pro forma disclosure  purposes,
the value of all options granted during the years ended September 30, 1999, 1998
and 1997, using the Black-Scholes option pricing model as prescribed by SFAS 123
using the following weighted average assumptions for grants:


                                             Year Ended September 30,
                                       ------------------------------------
                                       1999           1998             1997
                                       ----           ----             ----
     Risk-free interest rate           5.13%           6.00%             6.00%
     Expected dividend yield              0%              0%                0%
     Expected lives                   7 years         7 years           7 years
     Expected volatility               55.5%           57.1%             57.1%



                                       41
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Using the Black-Scholes  methodology,  the total value of options granted during
the years ended September 30, 1999, 1998 and 1997, was $1,064, $1,458 and $1,357
respectively,  which  would be  amortized  on a pro forma basis over the vesting
period of the options  (typically  three years).  The weighted average per share
fair value of options  granted during the years ended  September 30, 1999,  1998
and 1997, was $1.36, $1.60 and $1.27 respectively.  If the Company had accounted
for its  stock-based  compensation  plans  in  accordance  with  SFAS  123,  the
Company's  net  earnings   (loss)  and  net  earnings  (loss)  per  share  would
approximate the pro forma disclosures below:
<TABLE>
<CAPTION>
<S>                    <C>          <C>                  <C>            <C>             <C>           <C>

                              Year Ended                      Year Ended                       Year Ended
                          September 30, 1999              September 30, 1998               September 30, 1997
                       -------------------------       -------------------------        -------------------------
                       As Reported     Pro Forma       As Reported     Pro Forma        As Reported     Pro Forma
                       -----------     ---------       -----------     ---------        -----------     ---------
Net earnings (loss)     $ (9,539)    $ (10,203)            $ 312         $ (176)         $ (2,037)      $ (2,284)
Basic net earnings
   (loss) per share        (0.54)        (0.60)             0.00          (0.02)            (0.12)         (0.13)
Diluted net earnings
   (loss) per share        (0.54)        (0.60)             0.00          (0.02)            (0.12)         (0.13)
</TABLE>


The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future  amounts.  SFAS 123 does not apply to awards  prior to the year  ended
September 30, 1996, and additional awards are anticipated in future years.

The following table summarizes  information  about stock options  outstanding at
September 30, 1999:

<TABLE>
<CAPTION>
<S>                   <C>                      <C>                <C>                <C>                   <C>

                               Options Outstanding                                           Options Exercisable
----------------------------------------------------------------------------------    ----------------------------------
                                                  Weighted                            Number of shares
                            Number                 Average            Weighted         Exercisable at        Weighted
    Range of            Outstanding at            Remaining           Average           September 30,         Average
 Exercise Prices      September 30, 1999         Contractual       Exercise Price           1999             Exercise
                                                Life - Years                                                   Price
------------------    --------------------     ----------------    ---------------    ------------------    ------------
     $1.94 - 2.74               2,672,575                  8.3              $2.28             1,435,512           $2.25
       2.75 -3.66                 259,600                  6.3               3.21               218,475            3.26
------------------    --------------------     ----------------    ---------------    ------------------    ------------
    $ 1.94 - 3.66               2,932,175                  8.1              $2.36             1,653,987           $2.38

</TABLE>

At September  30, 1998 and 1997,  1,171,121 and 774,000  options,  respectively,
were  exercisable  at weighted  average  exercise  prices of $2.13 per share and
$1.68 per share, respectively.



                                       42
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 13. Stock Repurchase Program
---------------------------------

In  January  1996 the  Company  initiated  a stock  repurchase  program of up to
1,000,000  shares of its common stock.  Under this program the Company  acquired
195,200 shares during fiscal 1996 at an average price of $2.77 per share,  which
include  100,000  shares of common  stock at $2.75  per share  representing  the
market price on the date purchased from Enercorp, Inc., a publicly-held business
development  company which  beneficially owns approximately 11% of the Company's
stock. The Chairman and President of the Company is a significant shareholder of
Enercorp.  During the year ended  September 30, 1997,  the Company issued 65,000
treasury  shares at $2.50 per share to Enercorp and a consultant for acquisition
advisory work. The Loan prohibits  further  purchases  under this program except
for share  repurchases  allowed  from the  proceeds  of  employee  stock  option
exercise.


Note 14. Discontinued Operations
--------------------------------

Agriculture  Equipment  Segment - In December  1998,  the Company  announced its
intention to divest its  Agriculture  Equipment  Segment.  These  operations are
reflected as discontinued  operations for all periods presented in the Company's
Statements of  Operations.  During 1999,  the Company  recorded an estimated net
loss on disposal of $5,611,  net of tax benefit of $3,189, or $(0.30) per common
share, associated with the divestiture of the Agriculture Equipment Segment. The
loss is based upon events and information which resulted in management's revised
estimate of the net realizable value of the Agriculture  Equipment Segment.  The
revised estimate is based upon contract  negotiations and lower than anticipated
bids for  portions of the segment  which  resulted  in a  write-down  of certain
assets and a provision for  associated  costs.  Liabilities  of the  Agriculture
Equipment  Segment to be  retained  by the  Company as of  September  30,  1999,
amounted to $462  included  in the  accounts  payable  and $217  included in the
accrued  expenses  caption of the  accompanying  Consolidated  Balance Sheet for
current  payables and  accruals.  Additionally,  $570 is included in the current
portion  of  Long-term  Debt and  Capital  Leases  and $700 is  included  in the
Long-term Debt and Capital Leases obligations caption for debt to be retained.

Under  generally  accepted  accounting  principles,  a  provision  for  loss  on
discontinued  operations has been included based on management's  best estimates
of the amounts expected to be realized on the sale of the Agriculture  Equipment
Segment.  While  estimates  are based on an analysis of the  segment,  including
appraisals  of  equipment,  there have been limited  recent sales of  comparable
assets to consider in preparing  such  valuations.  The amounts the Company will
ultimately  realize  could differ  materially  in the near term from the amounts
assumed in arriving  at the loss  anticipated  on  disposal of the  discontinued
operations.











                                       43
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

The summarized results for the Agriculture Equipment segment for the years ended
September 30 are as follows:


                                           1999         1998         1997
                                           ----         ----         ----

Net sales                                $ 7,225     $  8,500     $  9,581
                                         ==================================

Loss from operations before allocated
   interest expense and income tax
   benefits                              $     -     $ (2,239)    $ (2,284)
Allocated interest expense                     -         (279)        (433)
                                         ----------------------------------
Loss from operations before income
   tax benefit                                 -       (2,518)      (2,717)
Income tax benefit                             -          959        1,087
Loss allocable to minority interest            -          288          250
                                         ----------------------------------
Loss from operations                           -       (1,271)      (1,380)

Loss on disposal before interest
   and income taxes                       (8,700)      (2,273)           -
Allocated interest expense                  (100)        (277)           -
                                         ----------------------------------
Loss on disposal before income tax
   benefit                                (8,800)      (2,550)           -
Income tax benefit                         3,189          972            -
Loss allocable to minority interest            -          175            -
                                         ----------------------------------
Loss on disposal                          (5,611)      (1,403)           -
                                         ----------------------------------
Total loss on discontinued operations    $(5,611)    $ (2,674)     (1,380)
                                         ==================================


The net  assets  of the  Agriculture  Equipment  segment  held  for  disposition
included in the  accompanying  Consolidated  Balance Sheet,  net of writedown to
estimated  net  realizable  value,  as of  September  30, 1999 and 1998,  are as
follows:

                                                          1999        1998
Current assets:                                           ----        ----
   Accounts receivable and inventory, net                $ 360      $ 5,787
                                                      ========================

Long term assets:
   Property, plant and equipment, net                    $ 500      $ 3,424
                                                      ========================


The Company has elected to allocate interest expense to discontinued  operations
based upon the net assets of the segment  being  disposed of at each  respective
year-end.

Automotive  Accessories  Segment - On March 16, 1998, the Company  completed the
sale of a substantial  portion of the assets of Kenco, to Kenco  Products,  Inc.
("KPI").  The  principal  owner  of  KPI  is  Colfax  Group,  Inc.,  a  Delaware
corporation.  One of the principal owners of Colfax Group,  Inc. had been acting
as general  manager in charge of operating the business of Kenco.  Colfax Group,
Inc. is unrelated to the Company.

                                       44
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Consideration  to the Company  consisted  of $1,000 cash,  $430 of  receivables,
assumption of $1,000 of liabilities  and 2,000 shares of non-voting  convertible
preferred  stock of KPI. Under the agreement,  KPI agreed to purchase  $2,600 of
Kenco inventory during the six months following the sale.  Approximately $430 of
inventory  was unsold at September  30, 1998 which was  purchased  subsequent to
year-end.  The sale was recorded  based upon the estimated  fair market value of
the assets disposed of. The Company previously  reported Kenco as a discontinued
operation beginning with the measurement date of May 8, 1997. The 1997 estimated
pre-tax loss on disposal of $3,276 represented estimated future operating losses
of which $500 remained as an estimated  liability at September 30, 1997. For the
year ended  September 30, 1998, the Company  reported an additional  loss on the
sale of Kenco in the amount of $2,626 before income tax benefit  resulting in an
additional net loss on disposal of discontinued operations of $1,625.

Colfax and one of the principal owners of Colfax Group,  Inc. has guaranteed the
obligations of KPI to Kenco.  The Company has a security  interest in all of the
assets of KPI subordinate to the security interest of KPI's bank.

The summarized results for Kenco for the years ended September 30 are as follows
reflecting operating results through the measurement date:

                                                        1998             1997
                                                        ----             ----
      Net sales                                       $  4,964         $  8,666
                                                      =========        =========

      Loss from operations before allocated interest
         expense and income tax benefit                      -           (1,727)
      Allocated interest expense                             -             (290)
                                                      ---------        ---------
      Loss from operations before income tax benefit         -           (2,017)
      Income tax benefit                                     -              810
                                                      ---------        ---------
      Loss from operations                                   -           (1,207)

      Loss on disposal before interest and income
         taxes                                          (2,428)          (2,771)
      Allocated interest expense                          (198)            (505)
                                                      ---------        ---------
      Loss on disposal before income tax benefit        (2,626)          (3,276)
      Income tax benefit                                 1,001            1,311
                                                      ---------        ---------
      Loss on disposal                                  (1,625)          (1,965)
                                                      ---------        ---------
         Total loss on discontinued operations        $ (1,625)        $ (3,172)
                                                      =========        =========


Note 15. Business Segment Information
-------------------------------------

In the fourth quarter of 1999, the Company adopted SFAS 131,  "Disclosures about
Segments of an Enterprise and Related  Information." SFAS 131 changes the method
of disclosing  segment  information  to the manner in which the Company's  chief
operating   decision  maker  organizes  the  components  for  making   operating
decisions,  assessing  performance  and  allocating  resources.  The Company has
organized the segments based on the type of products sold which are described in
Note 1. As  required  by SFAS  131,  all  prior  years'  segment  data  has been
restated.

The Company  accounts for its segments  under the same  policies as described in
the principal  accounting policies footnote.  Intersegment  revenues and related
earnings are not material.  Management  evaluates segment performance  primarily
based on revenue and operating income; therefore, other items included in pretax
income,  consisting primarily of interest income or expense, are not reported in
segment results.

                                       45
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Operating income is net of all corporate expenses,  which are allocated based on
measurable  services provided to each segment or for general corporate  expenses
which are allocated on a revenue and capital basis.

Identifiable  corporate assets consist  primarily of investment in an affiliated
company and other assets, and deferred taxes.
<TABLE>
<CAPTION>
<S>                                                                               <C>           <C>            <C>

                                                                                     1999          1998           1997
                                                                                   --------      --------       --------
NET SALES BY CLASSES OF SIMILAR PRODUCTS FROM CONTINUING OPERATIONS
Vehicle Components                                                                 $ 58,136      $ 54,071       $ 42,914
Electrical Components and GPS                                                         3,286         3,575          3,757
                                                                                   --------------------------------------
                                                                                   $ 61,422      $ 57,646       $ 46,671
EARNINGS (LOSS) FROM CONTINUING OPERATIONS                                         ======================================
Vehicle Components:
   Before loss from impairment of assets
   and acquired in-process research
   and developed expense                                                            $ 6,632      $ 10,992       $  7,609
   Loss from impairment of assets                                                    (5,278)            -              -
   Acquired in-process research and
   development expense                                                               (1,750)            -              -
                                                                                   --------------------------------------
Total Vehicle Components                                                               (396)       10,992          7,609
Electrical Components and GPS                                                        (2,635)       (2,001)        (1,217)
                                                                                   --------------------------------------
                                                                                   $ (3,031)     $  8,991       $  6,392
                                                                                   ======================================
IDENTIFIABLE ASSETS
Vehicle Components                                                                 $ 54,652      $ 47,038       $ 26,017
Electrical Components and GPS                                                         8,992         8,353          7,728
                                                                                   --------------------------------------
Total assets - continuing operations                                                 63,644        55,391         33,745
Automotive accessories - discontinued operations                                          -         3,963          8,699
Agricultural equipment - discontinued operations                                        860         9,211          5,869
                                                                                   --------------------------------------
Total assets                                                                       $ 64,504      $ 68,565       $ 48,313
                                                                                   ======================================
CAPITAL EXPENDITURES
Vehicle Components                                                                 $  3,721      $  6,446          $ 420
Electrical Components and GPS                                                         1,046           386            246
                                                                                   --------------------------------------
Total capital expenditures - continuing operations                                    4,767         6,832            666
Automotive accessories - discontinued operations                                          -             -            330
Agricultural equipment - discontinued operations                                         92           191            145
                                                                                   --------------------------------------
Total capital expenditures                                                         $  4,859      $  7,023        $ 1,141
                                                                                   ======================================

DEPRECIATION AND AMORTIZATION
Vehicle Components                                                                 $  1,652      $  1,077        $   756
Electrical Components and GPS                                                           404           329            315
                                                                                   --------------------------------------
Total depreciation and amortization - continuing operations                           2,056         1,406          1,071
Automotive accessories - discontinued operations                                          -           179            231
Agricultural equipment - discontinued operations                                         92           309            304
                                                                                   --------------------------------------
Total depreciation and amortization                                                $  2,148      $  1,894        $ 1,606
                                                                                   ======================================
</TABLE>
                                       46
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

For geographic information, revenues are allocated between the United States and
International,  depending on whether the shipments  are to customers  within the
United States or located  outside the United States.  Long-lived  assets outside
the United States were immaterial for all periods presented.

     Year ended September 30,      1999           1998           1997
                                   ----           ----           ----
     Canada                      $ 5,493        $ 3,377        $ 2,795
     Sweden                        1,868          2,073          1,439
     Mexico                        2,276             35              -
     Other                         2,947          3,201          2,121
                                 -------        -------        -------
     Net Sales-export             12,584          8,686          6,355
     United States                48,838         48,960         40,316
                                 -------        -------        -------
                                 $61,422        $57,646        $46,671
                                 =======        =======        =======


Note 16. Other Benefit Plans
----------------------------

The Company  maintains an Employee  Stock  Ownership  Plan (ESOP) for  non-union
employees.  The ESOP may buy shares of the Company's  stock from time to time on
the open market or directly  from the Company.  The ESOP has been  authorized to
borrow up to $1,000 from the Company or  financial  institutions  to finance its
purchases.  At September 30, 1999 all shares had been  allocated  under the plan
and there were no amounts under the loan outstanding.

The Company  sponsors  salaried  employees and union  employees  matching 401(k)
plans,  in which  eligible  employees may elect to contribute a portion of their
compensation.


Note 17. Post Retirement Benefits other than Pensions
-----------------------------------------------------

The Company 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.

Effective  October  1,  1993  the  Company  adopted  SFAS No.  106,  "Employers'
Accounting for Post Retirement  Benefits other than Pensions" ("SFAS 106"). SFAS
106  requires  companies to accrue the cost of post  retirement  health care and
life  insurance  benefits  within  employees'  active service period rather than
recognizing these costs on a cash basis as had been prior practice.

The  Company  elected  to  amortize  the  Accumulated  Post  Retirement  Benefit
obligation  at  October  1,  1993  over  twenty  years  as a  component  of post
retirement benefits expense.




                                       47
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

The following  table provides  information on the post retirement plan status at
September 30, 1999:

Accumulated Post Retirement Benefit Obligation              1999        1998
                                                            ----        ----

Retirees                                                   $ 1,503     $ 1,592
Fully eligible active participants                             662         660
Other active Plan participants                               1,312       1,333
                                                         -----------------------
                                                             3,477       3,585

Plan assets                                                      -           -
                                                         -----------------------
Accumulated post retirement benefit
    obligation in excess of Plan assets                      3,477       3,585

Unrecognized gain                                              500         147
Unrecognized prior service cost                               (576)       (649)
Unrecognized transition obligation                          (1,606)     (1,720)
                                                         -----------------------

Accrued post retirement benefit cost
    in the consolidated balance sheet                      $ 1,795     $ 1,363
                                                         =======================


Post retirement benefits expense included the following components for the years
ended September 30:
<TABLE>
<CAPTION>
<S>                                                         <C>        <C>        <C>
                                                            1999        1998        1997
                                                            ----        ----        ----
Service cost                                                $ 89        $ 92        $ 74
Interest cost                                                264         239         218
Amortization of unrecognized net obligation at transition    178         190         165
                                                           -----------------------------
Post retirement benefits expense                            $531        $521        $457
                                                           =============================
</TABLE>


The assumed health care cost trend rate used in measuring the  accumulated  post
retirement  benefit obligation (APBO) ranged between 4.5%-10% in the first year,
declining to 4.5% - 5.0% after 8 years.  The discount  rate used in  determining
the APBO was 7.75% and 6.75% for the years  ended  September  30, 1999 and 1998,
respectively.

If the  assumed  medical  costs  trends  were  increased  by 1%,  the APBO as of
September 30, 1999 would increase by $234, and the aggregate of the services and
interest cost components of the net annual post retirement benefit cost would be
increased by $30. If the assumed  medical costs trends were decreased by 1%, the
APBO as of September 30, 1999 would  decrease by $306,  and the aggregate of the
services and interest cost components of the net annual post retirement  benefit
cost would be decreased by $42.


                                       48
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 18. Acquisition
--------------------

In July,  1999, the Company  purchased the ProActive  Pedals  division of Active
Tools  Manufacturing  Co., Inc.  ProActive  Pedal is a designer and developer of
patented  adjustable foot pedal systems and modular pedal systems.  The purchase
price  included  $5,750 in cash,  plus the assumption of  approximately  $286 in
liabilities.  In addition,  the Company  entered into a patent  license with the
patent  holder  which  required an initial  payment of $600 and  minimum  annual
royalty payments of $95 per year for ten years.  Assets acquired include tooling
designs,  technology and patent rights on adjustable foot pedal systems, as well
as designs of modular foot pedal  systems.  The  acquisition  was  accounted for
using the  purchase  method of  accounting  and the  results  of  operations  of
ProActive  have been included in the  consolidated  results of operations of the
Company from the acquisition  date. The purchase price allocation  resulted in a
$1,750 charge to operations for acquired  in-process  research and  development,
determined by independent appraisal,  for the year ended September 30, 1999. The
technological  feasibility of the acquired technology,  which has no alternative
future use, had not been  established  prior to the purchase.  The allocation of
the  purchase  price  also  resulted  in $1,820  being  allocated  to  developed
technology which is being amortized over a seven year period.  The excess of the
purchase  price  over the fair  value of the  assets  acquired  and  liabilities
assumed of $2,162 was recorded as goodwill and is being  amortized on a straight
line basis over a 15 year period.

The following unaudited pro forma results for the years ended September 30, 1999
and 1998,  includes the results of ProActive  Pedals assuming such  acquisitions
occured as of October 1, 1997, and includes the acquired in-process research and
development charge in the period when incurred:

                                                  1999        1998
                                                  ----        ----
     Sales                                      $63,059     $57,856
     Operating income (loss)                     (5,401)      6,360
     Loss from continuing operations            (11,137)     (1,495)
     Net loss per share - basic                   (0.63)      (0.09)
     Net loss per share - diluted                 (0.63)      (0.09)


The purchase was financed  through the private  placement of 1,331,149 shares of
the  Company's  common  stock with net  proceeds  of  approximately  $3,379.  In
addition,  the  Company  borrowed  $2,500  from its bank  under a new term  loan
facility ("Term Loan III").


Note 19. Sale Leaseback
-----------------------

In April 1997 the Company sold its Portland,  Oregon manufacturing facility in a
sale-leaseback   transaction  for  approximately  $4,600.  The  transaction  was
accounted  for  as  a  financing  and  the  capitalized   lease  obligations  of
approximately  $4,600  were  recorded as long term  liabilities.  In April 1998,
under the terms of the  agreement,  the Company  provided a mortgage note to the
purchaser  in the amount of $3,200 which was  reported as a note  receivable  at
September  30,  1998.  In  December  1998,  the Company  exercised  an option to
repurchase  the building for $4,700,  consisting  of cash of $1,500 and the note
receivable of $3,200. Accordingly, the note receivable of $3,200 and the capital
lease  obligation  of $4,600  have been  eliminated  from the  balance  sheet at
September  30,  1999.  The costs  associated  with the building  repurchase  are
reported in other expenses during the year ended September 30, 1999.

The Company  borrowed  $2,500 from its bank under  amended term loans to finance
the  repurchase  transaction  and for working  capital  purposes.  Approximately
$1,222 of the  additional  financing  was  borrowed  under an  amendment  to the
Company's  existing  Term Loan I which  increased  the Term  Loan I  balance  to
$4,105.  Term Loan I is payable in equal  monthly  installments  of $60 with the
remaining  balance of $3,150  due at  maturity  on July 1,  2001.  Approximately
$1,278 of the  additional  financing was provided  under an amended Term Loan II
payable in 18 equal monthly installments of $71, plus variable interest (8.5% at
September 30, 1999).


                                       49
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Note 20. Quarterly Data (unaudited)
<TABLE>
<CAPTION>
<S>                                                       <C>           <C>           <C>          <C>           <C>

                                                              First        Second        Third        Fourth
                         1999 (1)                            Quarter       Quarter     Quarter (2)  Quarter (3)     Annual
                         --------                          ------------  ------------  -----------  ------------  ------------
Continuing operations:
 Net sales                                                    $ 14,399      $ 16,257     $ 15,749      $ 15,017      $ 61,422
Cost of sales                                                    9,700        11,396       11,366        14,841        47,303
                                                           ------------  ------------  -----------  ------------  ------------
 Gross margin                                                 $  4,699      $  4,861     $  4,383      $    176      $ 14,119
                                                           ============  ============  ===========  ============  ============
 Operating expenses                                           $  2,375      $  2,173     $  7,798      $  4,804      $ 17,150
                                                           ============  ============  ===========  ============  ============
Earnings (loss) from continuing operations                    $  1,031      $  1,477     $ (2,378)     $ (4,058)     $ (3,928)
Loss from discontinued operations                                    -             -            -        (5,611)       (5,611)
                                                           ============  ============  ===========  ============  ============
Net earnings (loss)                                           $  1,031      $  1,477     $ (2,378)     $ (9,669)     $ (9,539)
                                                           ============  ============  ===========  ============  ============

Earnings (loss) per common share from continuing
   operations - basic                                         $   0.05      $   0.07     $  (0.14)     $  (0.22)     $  (0.24)
(Loss) per common share from discontinued
   operations - basic                                                -             -            -         (0.29)        (0.30)
                                                           ============  ============  ===========  ============  ============
Earnings (loss) per common share - basic                      $   0.05      $   0.07     $  (0.14)     $  (0.51)     $  (0.54)
                                                           ============  ============  ===========  ============  ============
Earnings (loss) per common share from continuing
   operations - diluted                                       $   0.05      $   0.07     $  (0.14)     $  (0.22)     $  (0.24)
(Loss) per common share from discontinued
   operations - diluted                                              -             -            -         (0.29)        (0.30)
                                                           ============  ============  ===========  ============  ============
Earnings (loss) per common share - diluted                    $   0.05      $   0.07     $  (0.14)     $  (0.51)     $  (0.54)
                                                           ============  ============  ===========  ============  ============

                                                              First        Second        Third        Fourth
                       1998 (5) (6)                          Quarter       Quarter      Quarter     Quarter (4)      Annual
                       ------------                        ------------  ------------  -----------  ------------  ------------
Continuing operations:
 Net sales                                                    $ 12,698      $ 15,613     $ 14,767      $ 14,568      $ 57,646
Cost of sales                                                    8,825        10,648        9,949        10,707        40,129
                                                           ------------  ------------  -----------  ------------  ------------
 Gross margin                                                 $  3,873      $  4,965     $  4,818      $  3,861      $ 17,517
                                                           ============  ============  ===========  ============  ============
 Operating expenses                                           $  1,869      $  2,303     $  2,443      $  1,911      $  8,526
                                                           ============  ============  ===========  ============  ============
Earnings from continuing operations                           $    851      $  1,393     $  1,465      $    902      $  4,611
Loss from discontinued operations                                 (157)         (306)        (336)       (3,500)       (4,299)
                                                           ============  ============  ===========  ============  ============
Net earnings (loss)                                           $    694      $  1,087     $  1,129      $ (2,598)     $    312
                                                           ============  ============  ===========  ============  ============

Earnings per common share from continuing
   operations - basic                                         $   0.05      $   0.08     $   0.08      $   0.04      $   0.24
(Loss) per common share from discontinued
   operations - basic                                            (0.01)        (0.02)       (0.02)        (0.19)        (0.24)
                                                           ============  ============  ===========  ============  ============
Earnings (loss) per common share - basic                      $   0.04      $   0.06     $   0.06      $  (0.15)     $      -
                                                           ============  ============  ===========  ============  ============
Earnings per common share from continuing
   operations - diluted                                       $   0.05      $   0.08     $   0.07      $   0.04      $   0.23
(Loss) per common share from discontinued
   operations - diluted                                          (0.01)        (0.02)       (0.02)        (0.19)        (0.23)
                                                           ============  ============  ===========  ============  ============
Earnings (loss) per common share - diluted                    $   0.04      $   0.06     $   0.05      $  (0.15)     $      -
                                                           ============  ============  ===========  ============  ============
</TABLE>

                                       50
                                     <PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

(1)  Certain  reclassifications  have  been made to the first three quarters for
     the year ended September 30, 1999 from amounts previously reported.
(2)  The third quarter of 1999  operating  expenses  includes a $5,278 loss from
     the  impairment  of  assets  related  to  Kenco,   our  former   automotive
     accessories  business  unit,  consisting  of $4,655 for the  impairment  of
     non-voting  preferred stock and notes and accounts  receivable and $623 for
     the impairment of property.
(3)  The fourth quarter of 1999 operating  expenses  includes $1,750 expense for
     acquired  in-process  research  and  development  and changes in  estimated
     amounts for warranty and inventory reserves based on fourth quarter events.
     The fourth quarter of 1999 loss from  discontinued  operations  includes an
     additional  loss for the  Agricultural  Equipment  Segment  which  reflects
     events and information  which resulted in management's  revised estimate of
     the net realizable value of this segment.
(4)  The fourth quarter of 1998 loss from discontinued  operations  includes the
     effects of the Company's decision to dispose of its Agricultural  Equipment
     segment as of September 30, 1998 and an additional  loss on the disposal of
     its previously disposed of Automotive Accessories segment which represented
     an adjustment to the estimated value of non-voting preferred stock that the
     Company received in the sale and from additional liabilities related to the
     sale.
(5)  All quarters prior to the fourth quarter 1998 have been restated to reflect
     the Agricultural Equipment segment as a discontinued operation.
(6)  Earnings  (loss)  per  share  for  all  periods  have been restated for the
     provisions of SFAS 128.


Note 21. Related Parties
------------------------

In addition to related party  transactions  discussed  elsewhere in the notes to
the consolidated financial statements, during the year ended September 30, 1999,
$157 was paid to an affiliated  company,  for website development and e-commerce
designs.  The  chairman  of the  Company  is a  controlling  shareholder  of the
affiliated company.


Note 22. Contingencies
----------------------

The Company and its subsidiaries are involved in various lawsuits  incidental to
their  businesses.  It is the opinion of management that the ultimate outcome of
these  actions  will not  have a  material  effect  on the  Company's  financial
position or results of operations.

The Company has identified certain contaminants in the soil and groundwater of a
manufacturing  facility  located  in  an  industrial  area,  which  the  Company
believes,  was disposed of on the  property by a previous  property  owner.  The
Company's  environmental  consulting  firm has conducted  tests to determine the
levels of  contaminants.  The  Company  has been  advised  by  counsel  that the
contamination is not a reportable condition under current statutes. In the event
that  remediation   were  required  in  the  future,   the  Company  would  seek
indemnification  from the  prior  property  owner  under  the terms of the asset
purchase  agreement.  The prior  property  owner has advised the Company that it
would dispute any liability for remediation  costs.  The Company believes it can
enforce  available  claims  against  the prior  property  owner for any costs of
investigation and remediation.



                                       51
                                     <PAGE>







                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Board of Directors of
Williams Controls, Inc.:

We have  audited  the  accompanying  consolidated  balance  sheets  of  Williams
Controls,  Inc.  and  subsidiaries  as of September  30, 1999 and 1998,  and the
related  consolidated  statements  of  operations, comprehensive  income (loss),
shareholders'  equity,  and cash  flows for each of the two years in the  period
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Williams Controls,
Inc.  and  subsidiaries  as of September  30, 1999 and 1998,  and the results of
their  operations  and their  cash flows for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.



                                                        /s/  Arthur Andersen LLP
                                                        ------------------------
                                                             ARTHUR ANDERSEN LLP
Portland, Oregon,
December 29, 1999





                                       52
                                     <PAGE>



INDEPENDENT AUDITORS' REPORT

Board of Directors
Williams Controls, Inc.
Portland, Oregon

We  have  audited  the  accompanying   consolidated  statements  of  operations,
comprehensive  income  (loss),  shareholders'  equity and cash flows of Williams
Controls,  Inc. and  subsidiaries  for the year ended September 30, 1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 operations and cash flows of
Williams Controls,  Inc. and subsidiaries for the year ended September 30, 1997,
in conformity with generally accepted accounting principles.








/s/     Horwath Gelfond Hochstadt Pangburn & Co.
------------------------------------------------
HORWATH GELFOND HOCHSTADT PANGBURN & CO.



Denver, Colorado
December 18, 1997





                                       53
                                     <PAGE>


Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

On July 29, 1998,  the company filed a report on Form 8-K announcing a change in
accounting  firms  from  Horwath  Gelfond  Hochstadt  Pangburn  & Co.  to Arthur
Andersen LLP.


                                    Part III
                                    --------


Item 10. Directors and Executive Officers of the Registrant

Incorporated by reference from the Company's 1999 Proxy Statement.


Item 11. Executive Compensation

Incorporated by reference from the Company's 1999 Proxy Statement.


Item 12. Security Ownership of Certain Beneficial Owners and Management

Incorporated by reference from the Company's 1999 Proxy Statement.


Item 13. Certain Relationships and Related Transactions

Incorporated by reference from the Company's 1999 Proxy Statement.


                                     Part IV
                                     -------

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K

1. See Exhibit Index on page 60 of this Form 10-K.

2. See Index to Financial Statements in Item 8 of this Form 10-K.

3. See Index to Schedules on page 56 of this Form 10-K.

4. Reports on Form 8-K.

On Form 8-K dated August 13, 1999,  under "Item 2. Acquisition or Disposition of
Assets" the Company  announced the acquisition of the ProActive  Pedals Division
of Active Tools and Manufacturing Co., Inc.

On Form 8-KA dated October 12, 1999,  under "Item 7.  Financial  Statements  and
Exhibits"  the  Company  amended  its 8-K dated  August 13,  1999 to include (a)
financial  statements  of the  business  acquired  (ProActive  Pedals)  and  (b)
Proforma financial information.






                                       54
                                     <PAGE>

                                   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 29, 1999           By:  /s/   Thomas W. Itin
                                                  ------------------------------
                                                  Thomas W. Itin, Chairman,
                                                  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 29, 1999           By:  /s/ Thomas W. Itin
                                                  ------------------------------
                                                  Thomas W. Itin,
                                                  Principal Executive
                                                  Officer, Chairman, President,
                                                  Chief Executive Officer and
                                                  Director


         Date:   December 29, 1999           By:  /s/ Gerard A. Herlihy
                                                  ------------------------------
                                                  Gerard A. Herlihy
                                                  Chief Financial and
                                                  Administrative Officer

         Date:   December 29, 1999           By:  /s/ Kim L. Childs
                                                  ------------------------------
                                                  Kim L. Childs
                                                  Principal Accounting Officer


         Date:   December 29, 1999           By:  /s/ Anthony B. Cashen
                                                  ------------------------------
                                                  Anthony B. Cashen, Director


         Date:   December 29, 1999           By:
                                                  ------------------------------
                                                  H. Samuel Greenawalt, Director


         Date:   December 29, 1999           By:  /s/ Timothy Itin
                                                  ------------------------------
                                                  Timothy Itin, Director


         Date:   December 29, 1999           By:  /s/ Charles G. McClure
                                                  ------------------------------
                                                  Charles G. McClure, Director


                                       55
                                     <PAGE>







                             Williams Controls, Inc.

                               Index to Schedules





                                                                       Page
                                                                       ----



                   Report of Independent Public Accountants             57

                   Independent Auditors' Report                         58

Schedule II        Valuation and Qualifying Accounts                    59
























All other schedules are omitted because they are not required, not applicable or
the required information is given in the Consolidated Financial Statements.



                                       56
                                     <PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
Williams Controls, Inc.:

We have audited in accordance with generally  accepted auditing  standards,  the
financial statements, as of and for the years ended September 30, 1999 and 1998,
included in Williams Controls, Inc. and subsidiaries' Form 10-K, and have issued
our report  thereon dated  December 29, 1999. Our audit was made for the purpose
of forming an opinion on those  statements taken as a whole. The schedule listed
in the index to item 14 of this Form 10-K is the responsibility of the Company's
management  and is presented for purposes of complying  with the  Securities and
Exchange  Commissions  rules and is not part of the basic financial  statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic  financial  statements  and, in our opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.

                                                        /s/  Arthur Andersen LLP
                                                        ------------------------
                                                             ARTHUR ANDERSEN LLP

Portland, Oregon,
December 29, 1999



                                       57
                                     <PAGE>




INDEPENDENT AUDITORS' REPORT


Board of Directors
Williams Controls, Inc.
Portland, Oregon


We have audited the 1997 consolidated financial statements of Williams Controls,
Inc. and  subsidiaries,  referred to in our report dated December 18, 1997 which
is  included  under Item 8 in this Form 10-K.  In  connection  with our audit of
these financial  statements,  we audited the 1997 financial  statement schedule,
listed under Item 14 of this Form 10-K. In our opinion, this financial statement
schedule  presents  fairly,  in all material  respects,  the information  stated
therein,  when  considered  in relation to the financial  statements  taken as a
whole.




                                    /s/ Horwath Gelfond Hochstadt Pangburn & Co.
                                    --------------------------------------------
                                        HORWATH GELFOND HOCHSTADT PANGBURN & CO.




Denver, Colorado
December 18, 1997




                                       58
                                     <PAGE>


                             Williams Controls, Inc.

                        Valuation and Qualifying Accounts

                                   Schedule II

                             (Dollars in thousands)


                                                 Beginning             Ending
        Description                               balance              balance
        -----------                              ---------             -------

For Year Ended September 30, 1999

Total reserves for doubtful accounts
  and obsolete inventory                          $  569               $ 1,066
                                                  ======               =======


For Year Ended September 30, 1998

Total reserves for doubtful accounts
  and obsolete inventory                          $  855               $   569
                                                  ======               =======

For Year Ended September 30, 1997

Total reserves for doubtful accounts
  and obsolete inventory                          $1,064               $   855
                                                  ======               =======







NOTE: Valuation and qualifying accounts were not individually significant;  and,
therefore,  additions and deductions  information  has not been provided in this
schedule.





                                       59
                                     <PAGE>


                             Williams Controls, Inc.
                                  Exhibit Index

         Exhibit
         Number         Description
         -------        -----------

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


         3.2            By-Laws of the Registrant. (Incorporated by reference to
                        Exhibit 3.2 to the Registrant's  Registration  Statement
                        on Form S-18,  Registration  No. 33-  30601-S,  as filed
                        with the  Commission  on August 18, 1989 (the "1989 Form
                        S-18"))


         4.1            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.
                        0-18083, filed with the Commission on November 1, 1989)


         4.2            Form   of   Placement    Agent's    Warrant    Agreement
                        (Incorporated   by  reference  to  Exhibit  4.2  to  the
                        Registrant's   Registration   Statement   on  Form  S-3,
                        Registration  No. 333-59397 as filed with the Commission
                        on July 20, 1998)


         10.1(a)        Indemnification  Agreement  for Thomas W. Itin
                        ("Itin  Indemnification  Agreement").
                        (Incorporated  by reference to  Exhibit 10.9 to the 1989
                         Form S-18)


         10.1(b)        Amendment  No.  1 to  Itin  Indemnification  Agreement.
                        (Incorporated  by  reference  to  Exhibit 10.1(b) to the
                        Registrant's Annual Report on form 10-K for  the  Fiscal
                        Year Ended September 30, 1993 (the "1993 Form-10K"))


         10.1(c )       Form   of   Indemnification   Agreement  for  H.  Samuel
                        Greenawalt and Timothy Itin.  (Incorporated by reference
                        to Exhibit 10.1(c) to the Registrant's 1993 Form 10-K)


         10.2(a)        Credit  Agreement  dated July 11, 1997 among  Registrant
                        and its subsidiaries and Ajay Sports,  Inc. ("Ajay") and
                        its  subsidiaries,  all as  borrowers,  and Wells  Fargo
                        Bank,  National  Association,  as  lender  (the  "Credit
                        Agreement").  (Incorporated by reference to Exhibit 10.1
                        to the  Registrant's  Quarterly  Report on Form 10-Q for
                        the  period  ended  June 30,  1997 (the  "June 1997 Form
                        10-Q"))

         10.2(b)        Promissory Notes under the Credit Agreement:
                        (a) Revolving Credit Loans Promissory Note
                        (b) Term Loan I Promissory Note
                        (c) Term Loan II Promissory Note
                        (d) Real Estate Loan Promissory Note
                        (All  incorporated  by  reference to Exhibit 10.2 to the
                         Registrant's June 1997 Form 10-Q)
                        (e) Term Loan III Promissory Note (Filed Herewith)

                                       60
                                     <PAGE>

         Exhibit
         Number         Description
         -------        -----------

         10.2(c)        Mortgage and Security  Agreement between Aptek Williams,
                        Inc. and Wells Fargo Bank. (Incorporated by reference to
                        Exhibit 10.3 to the Registrant's June 1997 Form 10-Q)

         10.2(d)        Patent Assignment and Security Agreements for:
                        (a) Williams Controls Industries, Inc.
                        (b) Hardee Williams, Inc.
                        (c) Aptek Williams, Inc.
                        (All  incorporated  by reference  to Exhibit 10.4 to the
                         Registrant's June 1997 Form 10-Q)

         10.2(e)        Trademark Security Agreements for:
                        (a) Agrotec Williams, Inc.
                        (b) Hardee Williams, Inc.
                        (All  incorporated  by  reference to Exhibit 10.5 to the
                         Registrant's June 1997 Form 10-Q)

         10.2(f)        Continuing  Unconditional  Guaranty of Thomas W. Itin in
                        favor of Wells Fargo Bank.  (Incorporated  by  reference
                        to Exhibit 10.6 to the June 1997 Form 10-Q)

         10.2(g)        First Amendment to Credit Agreement dated June 30,  1998
                        (Incorporated   by   reference  to  Exhibit  10.1 to the
                        Registrant's Current  Report on Form 8-K, Date of report
                        June 30, 1998)

         10.2(h)        Replacement  Term Loan I Promissory Note, dated June 30,
                        1998 made by  Registrant  payable  to Wells  Fargo  Bank
                        (Incorporated  by  reference  to  Exhibit  10.2  to  the
                        Registrant's June 30, 1998 Form 8-K)

         10.3(a)        Intercreditor   Agreement  dated  July  11,  1997  among
                        Registrant  and  subsidiaries,  Ajay  Sports,  Inc.  and
                        subsidiaries, United States National Bank of Oregon ("US
                        Bank"),  Thomas W. Itin and Wells Fargo  Bank,  National
                        Association.  (Incorporated by reference to Exhibit 10.7
                        to the Registrant's June 1997 Form 10-Q)

         10.3(b)        Consent,  Reaffirmation  and Release  Agreement  with US
                        Bank.  (Incorporated by reference to Exhibit 10.8 to the
                        Registrant's June 1997 Form 10-Q)

         10.3(c)        Promissory Note of Ajay for $2,340,000 to US Bank.
                        (Incorporated   by  reference  to  Exhibit  10.9  to the
                        Registrant's June 1997 Form 10-Q)

         10.3(d)        Mortgage,  Assignment  of Rents,  Security Agreement and
                        Fixture Filing by Aptek Williams,  Inc.  in  favor of US
                        Bank.   (Incorporated by  reference  to Exhibit 10.10 to
                        the Registrant's June 1997 Form 10-Q)

         10.3(e)        Guaranty to US  Bank.   (Incorporated  by  reference  to
                        Exhibit 10.11 to the Registrant's June 1997 Form 10-Q)

         10.4(a)        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 period  ended  March 31,  1995 (the "March 1995 Form
                        10-Q"))

         10.4(b)        The Registrant's  1993  Stock  Option Plan as amended to
                        date (Filed Herewith)



                                       61
                                     <PAGE>
         Exhibit
         Number         Description
         -------        -----------

         10.5           Williams/Ajay  Loan  and  Joint  Venture  Implementation
                        Agreement  dated  May 6,  1994,  as  amended  by  letter
                        agreement   dated  April  3,  1995.   (Incorporated   by
                        reference to Exhibit 10.4 to the Registrant's March 1995
                        Form 10-Q)

         10.6(a)        Guaranty  dated as  of October 2, 1995 by Thomas W. Itin
                        to the Registrant  (the "Itin  Guaranty"). (Incorporated
                        by  reference  to  Exhibit 10.9 to the Registrant's 1995
                        Form 10-K)

         10.6(b)        Amendment One to the Itin Guaranty.    (Incorporated  by
                        reference to Exhibit 10.7(b) to the Registrant's  Annual
                        Report on Form 10-K for the period  ended  September 30,
                        1997 (the "1997 Form 10-K"))

         10.7           Security  Agreement  between Ajay and its  subsidiaries,
                        as debtors,  and the Registrant and its subsidiaries, as
                        secured parties.  (Incorporated  by reference to Exhibit
                        10.8 to the 1997 Form 10-K)

         10.8           Agreement,  dated  June  30,  1998,    by  and among the
                        Registrant  and Ajay Sports,  Inc. and its  subsidiaries
                        (Incorporated  by  reference  to  Exhibit  10.3  to  the
                        Registrant's June 30, 1998 Form 8-K)

         10.9           Asset  Purchase Agreement and related  Exhibits  between
                        Kenco    Williams,   Inc.  and  Kenco   Products,   Inc.
                        (Incorporated  by  reference  to  exhibit  10.1  to  the
                        Registrant's current  report on Form 8-K, date of report
                        March 16, 1998)

         10.10(a)       Asset  Purchase Agreement,   dated July 28, 1999, by and
                        between Active Tool &  Manufacturing  Co., Inc., and the
                        Registrant and its  subsidiary,   ProActive  Acquisition
                        Corporation  (Filed Herewith)

         10.10(b)       Patent  License  Agreement,  dated July 28, 1999, by and
                        between Edmond  B.  Cicotte  and the  Registrant and its
                        subsidiary, ProActive Acquisition Corporation
                        (Filed Herewith)

         21.1           List of Subsidiaries. See Item 1 in this report

         23.1           Consent of Horwath Gelfond Hochstadt Pangburn & Co.
                        (Filed Herewith)

         23.2           Consent of Arthur Andersen LLP (Filed Herewith)

         27.1           Financial Data Schedule (Filed Herewith)


                                       62
                                     <PAGE>