(Dollars in thousands - except share and per share amounts)

This section summarizes the significant factors affecting our consolidated results of operations, financial condition and liquidity position for each year comprising the three year period ended September 30, 2012. This section should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this document, and readers should note that dollar figures in this section, other than per-share data, are presented in thousands. Statements in this report that relate to future results and events are based on our current expectations. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties. For a discussion of factors affecting our business, see "ITEM 1 - BUSINESS" in this Annual Report on Form 10-K. Further, this section includes forward-looking statements which should be read in conjunction with the section entitled "Item 1A - Risk Factors."

Overview

Net sales increased to $64,372 in fiscal 2012, up 4% or $2,513, over fiscal 2011. While we continue to closely monitor all of our costs, we remain committed to spending on new product development and technology for existing and new customers. Although no assurances can be given, management believes that it is likely that our $1,750 in cash on hand plus available borrowing of $13,629 under our revolving loan facility will be adequate to sustain the Company during its next fiscal year.

As we move forward into fiscal 2012 and beyond, we will continue to work closely with our existing and potential customers to design and develop new products and adapt existing products to new applications, and to improve the performance, reliability and cost-effectiveness of our products.

                                   Financial Summary
                                   (Dollars in Thousands)

                                                                    2011 to      2010 to
                                     2012       2011       2010       2012        2011
Net sales                          $ 64,372   $ 61,859   $ 52,266        4.1 %       18.4 %
Cost of sales                        45,171     42,549     37,446        6.2 %       13.6 %

Gross profit                         19,201     19,310     14,820       (0.6 )%      30.3 %

Research and development              4,527      4,835      4,505       (6.4 )%       7.3 %
Selling                               3,036      2,855      2,836        6.3 %        0.7 %
Administration                        5,821      6,560      5,480      (11.3 )%      19.7 %
Class action settlement                   -          -        775         NM           NM

Operating income                   $  5,817   $  5,060   $  1,224

As a percentage of net sales:
Cost of sales                          70.2 %     68.8 %     71.6 %
Gross margin                           29.8 %     31.2 %     28.4 %
Research and development                7.0 %      7.8 %      8.6 %
Selling                                 4.7 %      4.6 %      5.4 %
Administration                          9.0 %     10.6 %     10.5 %
Class action settlement                   -          -        1.5 %
Operating income                        9.0 %      8.2 %      2.3 %

NM - not meaningful

                                                                       Percent Change
                                                                    2011 to      2010 to
For the Year Ended September 30:     2012       2011       2010       2012        2011
Net sales                          $ 64,372   $ 61,859   $ 52,266        4.1 %       18.4 %

Net sales increased $2,513 for fiscal 2012 as compared to fiscal 2011. The overall increase in sales in fiscal 2012 primarily results from increases in NAFTA heavy truck sales and off-road sales in NAFTA and Europe. These increases reflect an improving economic climate in fiscal 2012 as compared to fiscal 2011.

Net sales to NAFTA truck customers increased 23% when compared to fiscal 2011, primarily due to general improvements in the economic environment and freight hauling industry. NAFTA truck sales volumes were up throughout most of the fiscal year, but declined 10% in the fourth quarter when compared to fiscal 2011. European truck sales decreased 14% in fiscal 2012 over fiscal 2011. This decrease was primarily due to continuing economic uncertainties affecting Europe as well as to a lesser degree timing of shipments to one European customer in the first quarter of fiscal 2012. Sales to Asian customers declined 7% from the prior year, primarily due to decreases in sales to Chinese off-road customers and Korean truck customers; however, on a smaller base, sales to Indian customers were up 40% over sales in fiscal 2011. Worldwide off-road sales, which were up 13% for the fiscal year ended September 30, 2012, were the highest in the Company's history and comprised approximately 25% of the Company's total sales for the year.

We expect that electronic throttle control sales generally will continue to vary directly with future changes in the overall economy and the demand for heavy trucks, transit buses and off-road vehicles in particular. These variations are largely dependent upon, and are expected to vary directly with, production volumes in the various geographic markets in which we serve. Additionally, competitive pricing may reduce margins and gross sales.

Net sales increased $9,593 for fiscal 2011 as compared to fiscal 2010. The overall increase in sales in fiscal 2011 results from a combination of volume increases in essentially all of our principal geographic markets for existing programs and sales of approximately $3,000 for new product and program introductions. In fiscal 2011, we saw significant increases in heavy truck sales across all major markets. In addition, world-wide off-road sales were up 13% for the fiscal year ended September 30, 2011, and were the highest in the Company's history and comprised approximately 24% of the Company's total sales for the year.

                                                                       Percent Change
                                                                    2011 to      2010 to
For the Year Ended September 30:     2012       2011       2010       2012        2011
Cost of sales                      $ 45,171   $ 42,549   $ 37,446        6.2 %       13.6 %
Gross profit                       $ 19,201   $ 19,310   $ 14,820       (0.6 )%      30.3 %

Cost of sales includes raw materials, freight and duties, warranty, wages and benefits, depreciation and amortization, production utilities, shipping and production supplies, repairs and maintenance, production facility property insurance, and other production overhead.

As a percent of sales, cost of sales increased in fiscal 2012 as compared to 2011. As anticipated, material costs were higher in fiscal 2012 due to several components increasing pricing over the prior year, including die cast components and rare earth magnets. As a percent of sales, cost of sales were higher in India than any of the Company's other regions as that operation continues in its start-up phase, which negatively impacted margins. We are moving aggressively toward our planned localization of the supply base in India, which we believe will improve the operating performance in that region within the next three to six months. Additionally, freight and duties were up between periods generally in line with sales volume increases. Slightly offsetting these increases in component pricing were reductions in warranty costs and scrap costs between fiscal 2012 and 2011. Manufacturing overhead costs were lower as a percentage of sales between periods, but were up in actual dollar value.

As a percent of sales, cost of sales decreased in fiscal 2011 as compared to fiscal 2010, primarily due to higher sales volumes to distribute fixed overhead costs. Although sales volumes increased, freight and duty costs decreased slightly between periods as fiscal 2010 included excess air freight charges due to some of our suppliers having difficulty meeting delivery schedules. Purchase component costs were largely unchanged for the first half of the year; however, as the fiscal year progressed several components increased in price, including die cast components and rare earth magnets. Warranty costs decreased $679 between fiscal 2011 and 2010, as fiscal 2010 included unusually high warranty costs related to warranty claims with one customer. As sales volumes continue to improve and new products are introduced, we selectively added to our manufacturing support staff to accommodate the higher volumes resulting in overhead wage and benefit expenses increasing $435 in fiscal 2011 as compared to fiscal 2010. Health care costs for employees increased $119 during fiscal 2011 primarily due to increased health care rates and to a lesser extent the addition of manufacturing support staff during fiscal 2011. In addition, fiscal 2011 included costs associated with our India manufacturing facility for a full year as this facility was opened during the third quarter of fiscal 2010.

Gross profit was $19,201, or 29.8% of net sales for fiscal 2012, a decrease of $109 from the gross profit of $19,310, or 31.2% of net sales in the comparable fiscal 2011 period. The decrease in gross profit in fiscal 2012 was primarily driven by increases in component costs throughout the year and to a lesser extent increases in direct labor and manufacturing overhead costs in dollar value.

Gross profit was $19,310, or 31.2% of net sales for fiscal 2011, an increase of $4,490 from the gross profit of $14,820, or 28.4% of net sales in the comparable fiscal 2010 period. The increase in gross profit in fiscal 2011 was primarily driven by the 18% net increase in sales of electronic throttle control systems to our heavy truck, bus and off-road customers. Manufacturing overhead costs were slightly lower as a percent of sales in fiscal 2011 than in fiscal 2010 but increased on a dollar for dollar basis.

                                                                     Percent Change
                                                                  2011 to      2010 to
For the Year Ended September 30:    2012      2011      2010       2012         2011
Research and development           $ 4,527   $ 4,835   $ 4,505        (6.4 )%       7.3 %

Research and development expenses decreased $308 in fiscal 2012 when compared to fiscal 2011. The Company's research and development expenditures generally will fluctuate based on the products under development at any given point in time, and that fluctuation often does not coincide with sales cycles. The decrease in research and development expenses in fiscal 2012 is primarily due to reductions in project development expenses, stock option expense, travel costs and depreciation expenses.

                                                                    Percent Change
                                                                 2011 to      2010 to
For the Year Ended September 30:    2012      2011      2010       2012        2011
Selling                            $ 3,036   $ 2,855   $ 2,836        6.3 %        0.7 %

Selling expenses increased $181 between fiscal 2012 and fiscal 2011 mainly due to additions to our European sales team in late fiscal 2011 that were not in place during most of fiscal 2011, offset slightly by reductions in sales commission expense.

Selling expenses remained relatively flat between fiscal 2011 and fiscal 2010. Although wage related expenses and travel expenses in our European sales office temporarily decreased in fiscal 2011 as compared to fiscal 2010, these reductions were offset by increases in sales commissions during fiscal 2011 due to higher sales volumes in Russia and India and increases in wage related expenses in our other sales offices.

                                                                    Percent Change
                                                                 2011 to      2010 to
For the Year Ended September 30:    2012      2011      2010       2012        2011
Administration                     $ 5,821   $ 6,560   $ 5,480      (11.3 )%      19.7 %

Administration expenses for fiscal 2012 decreased $739 when compared to fiscal 2011. Both years include strategic transaction costs. Fiscal 2012 expenses include approximately $378 of transaction costs related to the merger agreement reached with Curtiss Wright Corporation subsequent to year end. In fiscal 2011, administration expenses included $349 related to a potential acquisition that the Company considered but ultimately decided to terminate during due diligence. Included in administration expenses in fiscal 2012 was a reduction of $225 related to our environmental liability. In November 2011, the State of Oregon Department of Environmental Quality adjusted its Risk Based Concentration ("RBC") levels and based on the revised RBC levels, we performed an evaluation of the effect on our environmental clean-up project, which resulted in the reduction of our liability. For further information regarding our environmental liability, refer to Note 10 to Consolidated Financial Statements. Included in fiscal 2011 administration expense was $228 in legal fees associated with settlement of an old outstanding claim against the Company by a former employee. In addition, information technology maintenance costs and employee recruitment expenses decreased during fiscal 2012 when compared to fiscal 2011, however, these reductions were partially offset by increases in taxes and filing fees in China related to new government construction and education taxes.

Administration expenses for fiscal 2011 increased $1,080 when compared to fiscal 2010. In fiscal 2011, administration expenses included $349 related to a potential acquisition that the Company considered but ultimately decided to terminate during due diligence. We also incurred a full year of costs associated with our India facility, which was opened during the third quarter of fiscal 2010. As sales volumes improved during fiscal 2011, we filled positions left vacant during the economic downturn experienced in late 2009 through 2010, which resulted in a $268 increase in administration wage expenses in fiscal 2011 as compared to fiscal 2010. Administration expenses in fiscal 2011 also included $228 in legal fees associated with settlement of an old outstanding claim against the Company by a former employee, an increase of $123 over fiscal 2010. Fiscal 2010 included legal fees of $421 associated with the Cuesta class action lawsuit, which was settled in the fourth quarter of fiscal 2010. Other increases in administration expenses in fiscal 2011 as compared to fiscal 2010 include: a $115 increase in taxes and filing fees in China related to new government construction and education taxes, an $84 increase in information technology maintenance costs and a reduction of $111 in fiscal 2010 related to our environmental liability accrual.

                                                              Percent Change
                                                           2011 to     2010 to
For the Year Ended September 30:   2012    2011    2010      2012        2011
Class action settlement            $   -   $   -   $ 775         NM          NM

During fiscal 2010, the Company entered into a settlement agreement with the plaintiffs in the Cuesta class action lawsuit and paid $775 for complete and final settlement of the action as discussed in Note 10 to Consolidated Financial Statements.

                                                               Percent Change
                                                            2011 to     2010 to
For the Year Ended September 30:   2012    2011     2010      2012        2011
Gain on sale of investments        $   -   $   -   $ (441 )       NM          NM

During the third quarter of fiscal 2010, we sold our short-term investments and recorded a $441 gain related to the sale.

                                                              Percent Change
                                                           2011 to     2010 to
For the Year Ended September 30:   2012    2011    2010      2012        2011
Other (income) expense, net        $  89   $ 211   $ (54 )       NM          NM

Other expense of $89 in fiscal 2012 consisted primarily of foreign currency transaction losses. Other expense of $211 in fiscal 2011 consisted primarily of foreign currency losses associated with our Chinese and Indian subsidiaries. Other income of $54 in fiscal 2010 consisted primarily of a $90 gain from the extinguishment of old outstanding accounts payable balances of various insolvent subsidiaries offset slightly by losses related to the disposal of certain fixed assets.

                                                                 Percent Change
                                                               2011 to    2010 to
For the Year Ended September 30:    2012      2011     2010      2012       2011
Income tax expense (benefit)       $ 2,244   $ 1,439   $ 338       55.9 %    325.7 %

In fiscal 2012, 2011 and 2010, the Company recorded income tax expense of $2,244, $1,439 and $338, respectively. The overall tax rate was 40.0% in fiscal 2012 compared to 30.1% in fiscal 2011 and 19.7% in fiscal 2010. The increase in the effective tax rate between fiscal 2012 and fiscal 2011 is primarily due to the continued recognition of a valuation allowance against the Company's Indian subsidiary's deferred tax assets, higher tax rates in China due to the scheduled end of the tax holiday in China on December 31, 2011 and the recognition of additional U.S. tax expense associated with foreign earnings no longer intended to be indefinitely reinvested in China.

The increase in the effective tax rate between fiscal 2011 and fiscal 2010 is primarily due to the mix of pretax earnings between domestic and foreign jurisdictions, primarily in China.

Refer to Note 9 in the Notes to Consolidated Financial Statements for further details of changes in our overall tax rate.

Financial Condition, Liquidity and Capital Resources

At September 30, 2012, we had cash and cash equivalents of $1,750. During fiscal 2012, we paid four quarterly cash dividends at $0.12 per share totaling $3,565 compared to two quarterly cash dividends of $1,765 in fiscal 2011. During fiscal 2012, we amended our revolving loan facility with U.S. Bank and as of September 30, 2012 we had $13,629 available under this revolving loan facility. Although no assurances can be given, we believe that our $1,750 in cash plus available borrowings under our revolving loan facility will be adequate to meet our working capital needs throughout fiscal 2012.

Cash generated from operations was $5,909 for fiscal 2012; an increase of $4,623 from the cash generated from operations of $1,286 for fiscal 2011. Net income plus non-cash charges for depreciation, amortization and stock based compensation contributed cash of $6,181 in fiscal 2012 compared to $6,416 in fiscal 2011.

Changes in working capital items used cash of $1,190 for fiscal 2012 compared to use of cash of $5,546 in fiscal 2011. Changes in receivables in fiscal 2012 were a use of cash of $110 compared to a use of cash of $2,052 in fiscal 2011. Changes in receivables between periods are primarily impacted by changes in sales volumes from period to period and to a lesser degree, timing of collections. Inventories decreased $2,298 in fiscal 2012 as compared to an increase of $3,822 in fiscal 2011. Inventories increased in fiscal 2011 primarily due to the start-up of our Indian manufacturing facility, safety stock and increasing inventory to meet customers' escalating delivery schedules. The inventory reduction in fiscal 2012 related to reducing some safety stock and more closely balancing inventory requirements with sales mix. Accounts payable and accrued expenses decreased in fiscal 2012 primarily due to reductions in inventory, timing of payments on accounts payable and increased seasonal payments of amounts accrued as of the prior year-end. Accounts payable and accrued expenses increased in fiscal 2011 primarily due to timing of payments on accounts payable and increases in purchases of inventory and supplies and were partially offset by increased seasonal payments of amounts accrued as of the prior year-end. Cash flows from operations for fiscal 2012 included payments to our pension plans of $1,140 compared to contributions of $1,042 for fiscal 2011. We believe it is likely we will continue to generate positive cash from operations, however, depending on the continued uncertainty in the worldwide economic market, we could experience periods of negative cash flow from operations.

Cash used in financing activities was $4,112 for fiscal 2012, compared to cash used in financing activities of $161 for fiscal 2011. Cash used in financing activities during fiscal 2012 primarily relates to payment of four quarterly cash dividends to stockholders of record totaling $3,565 and $614 in net payments on our revolving loan facility. Financing activities in fiscal 2012 also included $66 in proceeds from the exercise of stock options. Cash used in financing activities in fiscal 2011 primarily relates to net borrowings on our revolving loan facility of $1,575 and proceeds from the exercise of stock options of $29 substantially offset by payment of two quarterly dividends of $1,765 related to quarterly cash dividends of $0.12 per share. Borrowings and payments on our revolving loan facility are shown separately on the statement of cash flows due to the revolving loan facility having a maturity date of more than three months. The large balances for borrowings and payments represent the optimization of cash to reduce interest payments and are due to timing of when payments are made compared to when cash collections are received in a given period.

Contractual Obligations as of September 30, 2012

     At September 30, 2012, our contractual obligations consisted of operating
lease obligations, a license agreement and a revolving loan facility. We do not
have any material letters of credit or debt guarantees outstanding at September
30, 2012 except as noted in Note 7 to Consolidated Financial Statements.
Maturities of these contractual obligations consist of the following:


                                       Payments due by period
                                               Less than     1 - 3
                                    Total       1 year       years
Operating leases                  $   2,282   $       730   $ 1,552
MMT license - minimum royalties         136            36       100
Revolving loan facility                 961           961         -
                                  $   3,379   $     1,727   $ 1,652

Certain liabilities, including those related to our pension and post-retirement benefit plans, are reported in the accompanying consolidated balance sheets but are not reflected in the table above due to the absence of stated maturities. We have net obligations at September 30, 2012 related to our pension plans and post-retirement medical plan of $7,145 and $2,082, respectively. We funded $1,140 to our pension plans in fiscal 2012 compared to $1,042 in fiscal 2011 and we expect to make payments of $818 in fiscal 2013 to fund our pension plans.

Critical Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, cost of sales and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements.

Revenue is recognized at the time of product shipment, which is when title and risk of loss transfers to customers, and when all of the following have occurred: a firm sales agreement is in place, pricing is fixed or determinable, and collection is reasonably assured. Revenues are reported net of estimated returns, rebates and customer discounts. Discounts and rebates are recorded during the period they are earned by the customer.

Product Warranty

We provide a warranty covering defects arising from products sold. The product warranty liability is based on historical return rates of products and amounts for significant and specific warranty issues. The warranty is limited to a specified time period, mileage or hours of use, and varies by product, application and customer. The Company has recorded a warranty liability which, in the opinion of management, is adequate to cover such costs. While we believe our estimates are reasonable, they are subject to change and such change could be material.

Legal

From time to time we are involved in various claims, lawsuits and other proceedings from time to time. Such litigation involves uncertainty as to possible losses we may ultimately realize when one or more future events occur or fail to occur. In connection with such claims and lawsuits, we estimate the probability of losses based on advice of legal counsel, the outcomes of similar litigation, legislative development and other factors. Due to the numerous variables associated with these judgments and assumptions, both the precision . . .