Overview:

We are a Wayzata, Minnesota based full-service Electronics Manufacturing Services (EMS) contract manufacturer of wire and cable assemblies, printed circuit board assemblies, higher-level assemblies and box builds for a wide range of industries. Major markets served include industrial equipment and transportation, medical and military/defense. We have operating facilities in Baxter, Bemidji, Blue Earth, Fairmont and Merrifield, Minnesota, Garner, Iowa, Augusta, Wisconsin, and Monterrey, Mexico.

Summary:

For the quarter ended September 30, 2007, we reported net sales of $29.6 million, up 17% over the $25.3 million we reported in the same quarter of 2006. For the nine months ended September 30, 2007, we reported net sales of $88.8 million, up 15% over the $77.5 million we reported for the nine months ended September 30, 2006. Our sales increases are primarily due to our Garner, Iowa acquisition in February 2007. The gross profit percentage improved 2 percentage points over last years third quarter. The gross margin was 14% and 12% for the third quarters of 2007 and 2006, respectively. For the nine months ended September 30, 2007 and 2006, the gross profit percentage was 13% and 12%, respectively. Income from operations for the third quarter of 2007 totaled $1,031,570, an increase of 58% above the $654,185 reported in the third quarter of 2006. Income from operations for the nine months ended September 30, 2007 totaled $2,523,103, an increase of 34% above the $1,882,655 reported for the nine months ended September 30, 2006. Net income for the third quarter of 2007 totaled $420,506, or $0.15 per diluted common share, up 38% compared to $304,587, or $0.12 per diluted common share, reported in the third quarter of 2006. Net income for the nine months ended September 30, 2007 totaled $1,074,900, or $0.39 per diluted common share, and was above the $877,200, or $0.33 per diluted common share, reported for the nine months ended September 30, 2006.

(1.) Results of Operations:

The following table presents statement of operations data as percentages of total revenues for the periods indicated:

                                       Three Months Ended     Nine Months Ended
                                         September 30,          September 30,
                                        2007        2006       2007        2006

Net Sales                                  100 %       100 %      100 %       100 %
Cost of Good Sold                           86 %        88 %       87 %        88 %
Gross Profit                                14 %        12 %       13 %        12 %

Selling Expenses                             4 %         5 %        4 %         5 %
General and Administrative Expenses          7 %         4 %        6 %         5 %
Income from Operations                       3 %         3 %        3 %         2 %

Other Expenses, Net                          1 %         1 %        1 %         1 %
Income Tax Expense                           1 %         1 %        1 %         0 %
Net Income                                   1 %         1 %        1 %         1 %

Net Sales:

We reported net sales of $29.6 million and $25.3 million for the third quarters ended September 30, 2007 and 2006, respectively, a 17% increase year over year. The increase in net sales of $4.3 million for the third quarter is mainly attributable to the acquisition of the Garner, Iowa Electronic Circuit Board Assemblies facility accounting for $4.1 million of the increase. Our Aerospace Systems sales increased $1.9 million when compared to the third quarter of last year, while our Merrifield, Minnesota Electronic Circuit Board Assemblies facility and Cable and Wire sales were down $0.9 million and $0.8 million, respectively. We reported net sales of $88.8 million and $77.5 million for the nine months ended September 30, 2007 and 2006, respectively. The newly acquired Garner, Iowa Electronic Circuit Board Assemblies facility accounting for $10.2 million of the increase, our Aerospace Systems sales increased by $1.9 million and our Merrifield, Minnesota Electronic Circuit Board Assemblies facility by $0.2 million, while our Cable and Wire sales were down $1.0 million. Our 90-day order backlog as of September 30, 2007 was approximately $23.6 million, compared to approximately $22.6 million at the beginning of the quarter.

Gross Profit:

Our gross profit for the third quarter of 2007 was $4.1 million or 14% of net sales compared to gross profit of $3.0 million or 12% of net sales for the third quarter of 2006. A favorable mix of product and manufacturing cost improvements account for the gross profit percentage improvement. Our gross profit for the nine months ended September 30, 2007 was $11.9 million compared to gross profit of $9.5 million for the nine months ended September 30, 2006, representing 13% and 12% of net sales, respectively.

Selling Expense:

We had selling expenses of $1.1 million or 4% of net sales for the third quarter of 2007 compared to $1.2 million or 5% of net sales for the third quarter of 2006. For the nine months ended September 30, 2007 and 2006, we had selling expenses of $3.7 million and $3.4 million, respectively, representing 4% and 5% of net sales, respectively. We continue to monitor our selling expense and commission programs in order to maintain the right sales infrastructure to continue our high level of customer service and support.

General and Administrative Expense:

Our general and administrative expenses were $1.9 million or 7% of net sales for the third quarter of 2007 and $1.1 million or 4% of net sales reported for the third quarter of 2006. The increase in general and administrative expenses for the quarter of $0.8 million was a result of $0.2 million for our new Garner, Iowa facility and $0.6 million in personnel and related costs to support the business. For the nine months ended September 30, 2007 general and administrative expenses were $5.7 million or 6% of net sales and $4.2 million or 5% of net sales for the nine months ended September 30, 2006. The increase in general and administrative expenses for the nine months ended September 30, 2007, of $1.5 million was a result of $0.5 million for the support of our new Garner, Iowa facility, $0.2 million due to increased compliance costs and higher share based compensation expenses over the prior year and $0.8 million in personnel and other related costs needed to support the business.

Other Expense:

Other expenses, net were $339,064 for the quarter ended September 30, 2007 compared to $184,599 for the third quarter of 2006. Other expenses, net were $852,203 for the nine months ended September 30, 2007 compared to $535,455 for the nine months ended September 30, 2006. The increase in interest expense for the quarter and nine-month period of $80,583 and $202,066, respectively, resulted from increased debt levels related to the acquisition of Garner, Iowa in February 2007, the Blue Earth, Minnesota expansion that occurred in June 2006 and the increased working capital needs as a result of increases in Accounts Receivable and Inventory. Higher interest rates have also impacted overall interest charges. For the nine months ended September 30, 2007, interest income was positively impacted by $12,713 as the result of carrying the $427,500 of restricted cash related to the Blue Earth, Minnesota expansion. The remaining miscellaneous expense increase from 2006 resulted from experiencing less favorable currency exchange rates.

Income Tax:

Income tax expense for the three months ended September 30, 2007 was $272,000, compared to an income tax expense of $165,000 for the three months ended September 30, 2006. Income tax expense for the nine months ended September 30, 2007 was $596,000 compared to an income tax expense of $470,000 for the nine months ended September 30, 2006. The effective tax rate for 2007 is expected to approximate 36%, and the effective rate for 2006 was 30% due to the recognition of tax credits and other tax adjustments that occurred during 2006.

(2.) Liquidity and Capital Resources:

We have satisfied our liquidity needs over the past several years through revenue generated from operations and an operating line of credit through Wells Fargo Bank, N.A. (WFB). On February 2, 2007, we entered into a 7th amendment to our credit agreement with WFB increasing our line of credit arrangement from $10 million to $15 million and extending the maturity date of the line of credit to April 30, 2009. Additionally, the 7th amendment increased our real estate term note balance of $1,680,555 at February 2, 2007 to $3,348,750 and extended the maturity date to May 31, 2012. Per the 7th amendment, both the line of credit and real estate term note are subject to variations in the LIBOR rates. The 7th amendment funded the Iowa acquisition on February 4, 2007.

The line of credit and other installment debt with WFB contain certain covenants, which, among other things, require us to adhere to regular reporting requirements, abide by annual shareholder dividend limitations, maintain certain financial ratios, and limit the amount of annual capital expenditures. The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. The line is secured by substantially all of our assets. On September 30, 2007, we had an outstanding balance of $11.6 million under the line of credit and unused availability of $3.4 million supported by our borrowing base.

The following unaudited ratios are not required under the SEC guidelines or accounting principles generally accepted in the United States of America. However, we believe they are meaningful measures and are useful to readers of our financial statements.

                                   September 30,     December 31,    December 31,     December 31,
                                       2007              2006             2005            2004

Current Ratio
(Current Assets / Current
Liabilities)                                 1.52             1.63            1.60             1.65
Working Capital
(Current Assets - Current
Liabilities)                      $    13,789,638   $   12,711,278   $  12,214,328   $   11,749,991
Quick Ratio
(Cash + Accounts Receivable /
Current Liabilities)                         0.74             0.76            0.75             0.77
Accounts Receivable to Working
Capital
(Average Accounts Receivable/
Working Capital)                             1.22             1.14            1.14             1.03
Inventory to Working Capital
(Average Inventory/ Working
Capital)                                     1.28             1.25            1.23             1.10

Our working capital of $13.8 million as of September 30, 2007 increased from $12.7 million at December 31, 2006. The majority of our working capital changes were a direct result of $5.0 million of working capital generated from our new the Garner, Iowa operation. This increase was offset primarily due to $3.4 million in current financing activities to help fund the transaction, along with $0.5 million in other changes to working capital. We continue to focus our efforts on lowering inventory levels and collecting accounts receivable within terms in order to improve our working capital position.

Net cash used in operating activities for the nine months ended September 30, 2007 was $1.8 million, which is up from the $0.7 million of net cash used in operating activities for the nine months ended September 30, 2006. The cash flow from operations for the nine months ended September 30, 2007 is the result of net income of $1.1 million, adjusted for noncash depreciation, amortization, loss on the disposal of assets, stock-based compensation expense, foreign currency transaction loss, and the change in deferred taxes, which combined totaled $1.4 million in net positive adjustments, less the net change in operating assets and liabilities of $4.3 million. Increases in Accounts Receivable of $2.6 million, Inventories of $0.9 million and decreases in Accounts Payable of $0.8 million account for the majority of net use of working capital cash for the nine months ended September 30, 2007.

Net cash used in investing activities of $5.8 million for the nine months ended September 30, 2007 is primarily due to the acquisition of Garner, Iowa of $4.8 million (See Note 9) as well as $1.0 million in property and equipment and is up from $3.2 million net cash used in investing activities for the nine months ended September 30, 2006, where the majority of the use was for purchase of the Blue Earth, Minnesota facility. (See Note 9)

Net cash provided by financing activities for the nine months ended September 30, 2007 was $7.4 million, consisting primarily of drawing on the line of credit by $6.9 million and proceeds from the $1.7 million equipment note, offset by principal payments on notes payable.

We believe that our future financing requirements can be met with funds generated from our operating activities and our operating line of credit. Set forth below is information about our long-term contractual obligations outstanding as of September 30, 2007, excluding interest. Refer to the Annual Report on Form 10-K for detailed information on our long-term contractual obligations and commitments.

                                                              Payments Due by Period
                                      Remainder
                                       of 2007         2 - 3 Yrs            4 - 5 Yrs             Thereafter
Bank Note Payable                    $ 11,589,873     $         -    $                     -     $           -
Notes and Bonds Payable                   202,061       1,378,746                  2,947,604           800,000
Operating Leases                           87,596         574,205                    150,368                 -
Equipment Purchase Commitments            550,000         225,000                          -                 -
Total Contractual Obligations and
Commitments                          $ 12,429,530     $ 2,177,951    $             3,097,972     $     800,000

Included in the equipment purchase commitments is $427,500 that will be used for the purchase of equipment for the Blue Earth facility as specified in the Industrial Revenue Bond Agreement.

From time to time we enter into purchase commitments with our suppliers under customer purchase order forms. Any significant losses implicit in these contracts would be recognized in accordance with generally accepted accounting principles. At September 30, 2007, no such losses existed.

(3.) Critical Accounting Policies:

Our significant accounting policies and estimates are summarized in the footnotes to the annual consolidated financial statements. Some of the most critical accounting policies and estimates that require us to exercise significant judgment are listed below.

Revenue Recognition:

We recognize revenue upon shipment of products to customers, when title has passed, all contractual obligations have been satisfied and collection of the resulting receivables are reasonably assured. In the normal course of business, we enter into a number of contracts with customers under which we provide engineering services on a per project basis. Revenue for these services is recognized upon completion of the engineering process, usually upon initial shipment of the product. Revenues from repair services are recognized upon shipment of related equipment to customers.

Allowance for Uncollectible Accounts:

We evaluate our allowance for uncollectible accounts on a quarterly basis and review any significant customers with delinquent balances to determine future collectibility. We base our determinations on legal issues (such as bankruptcy status), past history, current financial and credit agency reports, and experience. We reserve accounts deemed to be uncollectible in the quarter in which we make the determination. We maintain additional reserves based on our historical bad debt experience. We believe these estimates may differ from actual results. We believe that, based on past history and credit policies, the net accounts receivable are of good quality.

Inventory Valuation and Reserves:

Inventories are stated at the lower of cost (first-in, first out method) or market (based on the lower of replacement cost or net realizable value). Costs include material, labor, and overhead required in the warehousing and production of our products. Inventory reserves are maintained for the estimated value of the inventory that may have a lower value than stated or in excess of production needs. These estimates may differ from actual results. We have an evaluation process that is used to assess the value of the inventory by part and customer that is slow moving, excess or obsolete. This process is reviewed and evaluated quarterly.

Deferred Income Tax Valuation:

At September 30, 2007 and December 31, 2006, we have recorded U.S. and state deferred tax assets pertaining to the recognition of future deductible temporary differences. We have not provided any valuation allowance with respect to these assets, as we believe their realization is "more likely than not." This determination is primarily based upon our expectation that future U.S. operations will be sufficiently profitable, as well as various tax, business and other planning strategies available to us. We cannot assure you that we will be able to realize this asset or that future valuation allowances will not be required. The failure to utilize this asset would adversely affect our results of operations and financial position.

Valuation of Long-Lived Assets Including Intangible Assets with Finite Lives:

We evaluate long-lived assets and intangible assets with finite lives for impairment, as well as the related amortization periods, to determine whether adjustments to these amounts or useful lives are required based on current events and circumstances. The evaluation is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge is recorded to reduce the carrying amount to its estimated fair value.

The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows. The estimates associated with the asset impairment tests are considered critical due to the judgments required in determining fair value amounts, including projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss.

Allocation of Purchase Price Paid for the Garner, Iowa Business Acquisition:

As a result of our Garner, Iowa business acquisition, as described in Note 9 in the condensed notes to the consolidated financial statements, we were required to allocate the consideration paid between tangible assets, identifiable intangible assets, and goodwill. We engaged an independent valuation firm to assist in the determination of the fair values of the intangible assets. The amount of the purchase price allocated to intangible assets is being determined by estimating the future cash flows of each asset and discounting the net cash flows back to their present values. The discount rate being used in calculating the present value of the various intangibles is in accordance with accepted valuation methods. Preliminary estimates indicate that there is no residual goodwill. However, because the estimated purchase price is subject to change, the allocation of the fair values may also change.

Stock-Based Compensation:

We adopted the provisions of SFAS 123R, "Share-Based Payment" on January 1, 2006. SFAS 123R requires us to measure and recognize in our consolidated statements of operations the expense associated with all share-based payment awards made to employees and directors based on estimated fair values. We have two types of stock-based compensation awards consisting of restricted stock and stock options.

Restricted stock is valued at the market price of the stock on the date of grant. These awards vest over a three-year term and are expensed ratably over the same period.

We utilize the Black-Scholes option valuation model to measure the amount of compensation expense to be recognized for each stock option award. There are several assumptions that must be made when using the Black-Scholes model such as the expected term of each option, the expected volatility of the stock price during the expected term of the option, the expected dividends to be paid and the risk free interest rate expected during the option term. We have reviewed each of these assumptions carefully and we determined our best estimate for these variables. Of these assumptions, the expected term of the option and expected volatility of our common stock are the most difficult to estimate since they are based on the exercise behavior of employees and the expected performance of our stock. An increase in the volatility of our stock will increase the amount of compensation expense on new awards. An increase in the holding period of options will also cause an increase in compensation expense. Dividend yields and risk-free interest rates are less difficult to estimate, but an increase in the dividend yield will cause a decrease in expense and an increase in the risk-free interest rate will increase compensation expense.

Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our consolidated financial statements provide a meaningful and fair perspective of our financial position as of September 30, 2007 and results of operations for the three-month and nine-month periods ended September 30, 2007 and 2006. This is not to suggest that other general risk factors, such as changes in worldwide economic conditions, fluctuations in foreign currency exchange rates, changes in materials costs, performance of acquired businesses and others, could not adversely impact our consolidated financial position, results of operations and cash flows in future periods.

(4.) Forward-Looking Statements:

Those statements in the foregoing report that are not historical facts are forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements generally will be accompanied by words such as "anticipate," "believe," "estimate," "expect," "forecast," "intend," "possible," "potential," "predict," "project," or other similar words that convey the uncertainty of future events or outcomes. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation:

• Volatility in the marketplace which may affect market supply and demand for our products;

•          Increased competition;
•          Changes in the reliability and efficiency of operating facilities or
those of third parties;

•          Risks related to availability of labor;

•          Increase in certain raw material costs such as copper;

•          Commodity and energy cost instability;

•          General economic, financial and business conditions that could affect

The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Unpredictable or unknown factors not discussed herein could also have material adverse effects on forward-looking statements. All forward-looking statements included in this Form 10-Q are expressly qualified in their entirety by the forgoing cautionary statements. We undertake no obligations to update publicly any forward-looking statement (or its associated cautionary language) whether as a result of new information or future events.