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, 2008, we reported net sales of $31.7 million, up 7% over the $29.6 million we reported in the same quarter of 2007. For the nine months ended September 30, 2008, we reported net sales of $94.9 million, up 7% over the $88.8 million we reported for the first nine months of 2007. The gross profit percentage was 13.6% and 13.7% for the third quarters of 2008 and 2007, respectively. For the first nine months of 2008 and 2007, the gross profit percentage was 14.3% and 13.5%, respectively. Income from operations for the third quarter of 2008 totaled $0.9 million, a decrease of 8% over the $1.0 reported in the third quarter of 2007. Income from operations for the first nine months of 2008 totaled $3.3 million, an increase of 31% above the $2.5 million reported in the first nine months of 2007. Net income for the third quarter of 2008 totaled $0.5 million, or $0.18 per diluted common share which is up 19% compared to $0.4 million, or $0.15 per diluted common share, reported in the third quarter of 2007. Net income for the first nine months of 2008 totaled $1.7 million, or $0.61 per diluted common share, and was 56% higher than the $1.1 million, or $0.39 per diluted common share, reported in the first nine months of 2007.

(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
                                        2008         2007        2008        2007
Net Sales                                 100.0 %      100.0 %    100.0 %     100.0 %
Cost of Goods Sold                         86.4 %       86.3 %     85.7 %      86.5 %
Gross Profit                               13.6 %       13.7 %     14.3 %      13.5 %

Selling Expenses                            4.7 %        3.8 %      4.5 %       4.2 %
General and Administrative Expenses         5.8 %        6.5 %      6.3 %       6.5 %
Income from Operations                      3.1 %        3.4 %      3.5 %       2.8 %

Other Expenses, Net                         0.4 %        1.1 %      0.6 %       1.0 %
Income Tax Expense                          1.1 %        0.9 %      1.1 %       0.7 %
Net Income                                  1.6 %        1.4 %      1.8 %       1.1 %

Net Sales:

We reported net sales of $31.7 million and $29.6 million for the third quarters ended September 30, 2008 and 2007, respectively, a 7% increase year over year. Our Aerospace Systems product line operations were up 21% and our Commercial Cable and Wire product line operations were up 19% as compared to the third quarter of 2007. These increases were offset by a 16% sales decline in our

Commercial Electronic Board Assembly product line operations. We reported net sales of $94.9 million and $88.8 million for the nine months ended September 30, 2008 and 2007, respectively. The increase in net sales of $6.1 million for the first nine months is primarily due to sales increases in our Aerospace Systems product line operations. Our 90-day order backlog as of September 30, 2008 was approximately $26.2 million, compared to approximately $27.3 million at the beginning of the quarter.

Gross Profit:

Our gross profit for the third quarter of 2008 was $4.3 million or 13.6% of net sales, relatively flat when compared to gross profit of $4.1 million or 13.7% of net sales for the third quarter of 2007. Our gross profit for the first nine months of 2008 was $13.6 million or 14.3% of net sales compared to gross profit of $11.9 million or 13.5% of net sales for the first nine months of 2007. Favorable product mix, process improvements, and leveraging of our manufacturing costs accounted for the majority of margin improvements for the nine months.

Selling Expense:

We had selling expenses of $1.5 million or 4.7% of net sales for the third quarter of 2008 and $1.1 million or 3.8% of net sales for the third quarter of 2007. The increase in selling expenses of $0.4 million for the quarter was due to an increase in commissions and other related personnel costs. For the first nine months ended September 30, 2008 we had selling expenses of $4.3 million or 4.5% of net sales compared to selling expense of $3.7 million or 4.2% of net sales for the first nine months of 2007. The $0.6 million increase in selling expense was the result of our continued investment in sales programs and systems in order to maintain a high level of customer service and support.

General and Administrative Expense:

Our general and administrative expenses were flat at $1.9 million or 5.8% of net sales for the third quarter of 2008, compared to $1.9 million or 6.5% of net sales reported for the third quarter of 2007. For the first nine months ended September 30, 2008, we had general and administrative expenses of $6.0 million or 6.3% of net sales compared to general and administrative expenses of $5.7 million, or 6.5% of net sales for the first nine months ended September 30, 2007. The increase in general and administrative expenses for the first nine months of $0.3 million was the result of increased personnel and related costs, as well as increased consulting fees to support our Focus Lean initiatives and compliance related items.

Other Expense:

Other expenses, net were $116,000 for the quarter ended September 30, 2008 compared to $339,000 for the third quarter of 2007. Other expenses, net were $528,000 for the nine months ended September 30, 2008 compared to $852,000 for the nine months ended September 30, 2007. The decrease in other expenses was the result of a decrease in interest expense due to lower debt levels and lower interest rates.

Income Tax:

Income tax expense for the three months ended September 30, 2008 was $331,000 compared to an income tax expense of $272,000 for the three months ended September 30, 2007. Income tax expense for the nine months ended September 30, 2008 was $1,091,000 compared to an income tax expense of $596,000 for the nine months ended September 30, 2007. The annual effective tax rate for 2008 is expected to be approximately 39% while the annual effective tax rate for 2007 was 36%. The increase in the tax rate from 2007 is primarily due to the timing/realization of federal research and experimentation credits. The law allowing such credits for 2008 and 2009 was enacted on October 2, 2008, and the impact of the 2008 credits will be recognized in our fourth quarter of 2008.

(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). Both the line of credit and real estate term note are subject to variations in the LIBOR rates. 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, 2008, we had an outstanding balance of $8.2 million under the line of credit and unused availability of $6.8 million supported by our borrowing base level.

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,
                                          2008              2007             2006             2005

Current Ratio                                   1.67             1.68             1.63             1.60
(Current Assets / Current
Liabilities)
Working Capital                      $    16,311,000    $  14,813,000    $  12,711,000    $  12,214,000

(Current Assets - Current
Liabilities)
Quick Ratio                                     0.73             0.75             0.75             0.77
(Cash + Accounts Receivable /
Current Liabilities)
Accounts Receivable to Working
Capital                                         1.10             1.01             1.14             1.14
(Average Accounts Receivable/
Working Capital)
Inventory to Working Capital                    1.30             1.18             1.25             1.23
(Average Inventory/ Working
Capital)

Our working capital of $16.3 million as of September 30, 2008 increased from $14.8 million at December 31, 2007. The working capital increase can be attributed to increases in Accounts Receivable and Inventory, which were partially offset by an increase in debt levels. We are increasing our efforts to lower inventory levels and collect accounts receivable within terms in order to further strengthen our working capital position.

Net cash used in operating activities for the nine months ended September 30, 2008 was $1.1 million compared to $1.8 million of net cash used in operating activities for the nine months ended September 30, 2007. The cash flow from operations for the nine months ended September 30, 2008 is the result of net income of $1.7 million, adjusted for noncash depreciation, amortization, gain on the disposal of assets, stock-based compensation expense, foreign currency transaction loss, deferred taxes, and the

interest on swap valuation, which combined totaled $1.6 million in net positive adjustments, less the net change in operating assets and liabilities of $4.3 million. Our working capital saw increases in Accounts Receivable of $2.0 million and Inventories of $2.5 million to support the growth and additional customer service requirements in the first nine months of 2008, and was offset by an increase in accruals.

Net cash used in investing activities of $1.3 million for the nine months ended September 30, 2008 is primarily comprised of equipment purchases.

Net cash provided by financing activities for the nine months ended September 30, 2008 was $1.8 million, consisting primarily of drawing on the line of credit by $2.6 million, and 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.

(3.) Critical Accounting Policies and Estimates

Our significant accounting policies and estimates are summarized in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2007. There have been no significant changes in these critical accounting policies since December 31, 2007, other than the adoption of SFAS 157 and 159 as discussed in Notes 4 and 8, respectively, of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q. Some of our accounting policies require us to exercise significant judgment in selecting the appropriate assumptions for calculating financial estimates. Such judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, known trends in our industry, terms of existing contracts and other information from outside sources, as appropriate. Actual results could differ from these estimates.

(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
our financial condition and results of operations.

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.