FORWARD LOOKING STATEMENTS

Statements in this discussion and analysis about the Company's anticipated financial results and growth, as well as those about the development of its products and markets, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These include the risks discussed under 'Risk Factors' below and throughout this Item 2.

CRITICAL ACCOUNTING ESTIMATES

As of December 27, 2008 there have been no material changes to the critical accounting estimates described in the Company's 2008 10-K. However, if the continuing worldwide economic troubles continue to have a negative effect on our business, actual conditions in future periods may vary materially from those the Company previously estimated.

For example:

(i) if the financial condition of any of the Company's customers deteriorates as a result of continuing business declines, the Company may be required to increase its estimated allowance for bad debts;

(ii) if actual future demand continues to decline more than previously projected, inventory write-downs may be required; or

(iii) significant negative industry or economic trends that adversely affect our future revenues and profits, or a reduction of our market capitalization relative to net book value, among other factors, may change the estimated future cash flows or other factors that we use to determine whether or not goodwill has been impaired and lead us to conclude that an impairment charge is required.

All of these factors, and others resulting from the current economic situation, may have a material adverse impact on the Company's results.

Pension Plan Assumptions

The Company's pension plans are significant relative to the size of the Company. Pension plan assets were $18,162,000 at September 30, 2008 and the total assets of the Company were $19,755,000. Although the plan assets are not included in the assets of the Company, they were equal to 92% of the Company's total assets at September 30, 2008. In accordance with SFAS No. 158 the funded status of the pension plans (plan assets less the accumulated benefit obligation) is recognized in the Company's balance sheet as "Liability for pension benefits", which amounted to $290,000 at December 27, 2008, compared to $378,000 at September 30, 2008.

The Company makes a number of assumptions relating to its pension plans in order to measure the financial position of the plans and the net periodic benefit cost. The most significant assumptions relate to the discount rate, the expected long term return on plan assets and the rate of future compensation increase. If these assumptions prove to be incorrect then the Company may need to record additional expense relating to the pension plans which could have a material effect on the Company's results of operations.

The table below sets out the approximate impact on the funded status of the Company's pension plans at December 27, 2008 that the Company estimates would arise from the respective changes in significant plan assumptions. The data used to calculate the estimated impact on the funded status at December 27, 2008 is derived from the most recently available actuarial review of the pension plans with an effective date of September 30, 2008:

Plan Assumption         Change in      Impact on      Change in
                       Assumption    Funded Status  funded status
                       (increase)    (in thousands
                                      of dollars)
                                      (decrease)
Assumptions impacting
accumulated benefit
obligation:
Discount rate             0.1%           $ 450           155%
Inflation rate            0.1%             300           103%
Salary Increase           0.5%             775           267%
Mortality rate           1 year            375           129%

Goodwill Impairment

As discussed in our 2008 10-K, the Company carries out an annual assessment of the realizability of goodwill. Despite the uncertain economic outlook, management believes the goodwill of $1,435,000 at December 27, 2008 is not impaired. However, if in future periods, the Company's results of operations, cash flows or the market price of the Company's stock continue to decline significantly, then it may be necessary to record an impairment charge relating to goodwill of up to $1,435,000.

OVERVIEW OF FIRST QUARTER

Results of Operations

Three months ended December 27, 2008

Results of operations were materially adversely affected by the continuing
general business decline, as well as adverse movements in exchange rates. The
following table compares results by segment for the first quarter of fiscal 2009
with the prior year period and shows the percentage changes in total and split
between the currency impact and volume / other changes:

                                         Three months ended                           % change due to:
                                   December 27,        December 29,
                                           2008                2007         Total       Currency       Volume / other
Sales:
Controls - to external
customers                         $       6,380      $        9,707          -34%            -7%                 -27%
Capacitors - to external
customers                                   447                 536          -17%           -29%                  12%
Capacitors - inter-segment                    5                  12          -58%            -8%                 -50%
Capacitors - total                          452                 548          -18%           -29%                  11%
Total sales to external
customers                                 6,827              10,243          -33%            -9%                 -24%
Gross Profit:
Controls                                  2,076               3,686          -44%           -12%                 -32%
Capacitors                                  206                 196            5%           -37%                  42%
Total                                     2,282               3,882          -41%           -13%                 -28%
Selling research and
administrative expenses:
Controls                                  1,997               3,035          -34%           -13%                 -21%
Capacitors                                  154                 230          -33%           -23%                 -10%
Unallocated corporate expense                58                  32           81%             0%                  81%
Total                                     2,209               3,297          -33%           -14%                 -19%
Operating income:
Controls                                     79                 651          -88%            -3%                 -85%
Capacitors                                   52                 (34 )        253%           -56%                 309%
Unallocated corporate expense               (58 )               (32 )        -81%             0%                  81%
Total                                        73                 585          -88%            -7%                 -81%
Other income and expense                   (291 )              (103 )       -183%          -205%                  22%
(Loss) income before income
taxes                                      (218 )               482         -145%           -51%                 -94%
Income taxes                                 77                (169 )        146%            52%                  94%
Net (loss) income                 $        (141 )    $          313         -145%           -51%                 -94%

Sales in the first quarter ended December 27, 2008 declined by $3,416,000, or 33%, to $6,827,000 compared to $10,243,000 in the first fiscal quarter last year. Volumes shipped were 25% lower than last year. In addition, the strengthening of the US dollar by 26% and 10% against the British Pound and the Euro, respectively, reduced reported total sales by $898,000 or 9% compared to the first fiscal quarter of 2008. In the controls business, volumes shipped were lower in all geographic areas in which the Company operates. The most significant reduction was in the European demand for aerial work platforms.

In the capacitor business, shipments were 12% higher than during the first quarter last year due to higher demand from the industrial sector of its business. Currency changes, mainly the strengthening of the US Dollar against the British Pound, reduced reported total sales by $154,000 or 29% from the first fiscal quarter of 2008.

The Company has begun selectively instituting price increases; however, these did not have a material impact on the quarter's results and it is too early to predict their impact in the future.

Gross profit of $2,282,000 was 33.4% of sales in the first quarter compared to $3,882,000 or 37.9% of sales in the same quarter last year. The reduction in gross profit of $1,600,000 was due mainly to the lower volume of sales. Foreign currency fluctuations reduced reported gross profit by $496,000 or 13%.

Selling, research and administrative expenses were $2,209,000, a reduction of $1,088,000, or 33% compared to the same period last year. Foreign currency fluctuations reduced selling, research and administrative expense by $460,000, or 14%, compared with the prior year. Excluding the currency impact, operating expense was $628,000, or 20% lower, principally due to the effect of the business restructuring the Company implemented in the third quarter of last fiscal year.

The operating profit for the first quarter was $73,000, compared with $585,000 in the same period last year, a reduction of $512,000. Foreign currency fluctuations had an adverse impact of $36,000 in the quarter. Excluding the currency impact, operating income for the controller business reduced by $555,000 due to the lower volumes shipped, which was offset by the reduction in operating expense. The capacitor business segment reported an operating profit of $52,000 compared with an operating loss of $34,000 in the first quarter last year. The increase in operating income in the capacitor business was due to higher sales volume, improved gross margins and lower operating expense compared to the same quarter last year.

In the first quarter interest expense was $7,000, a reduction of $23,000 compared to the prior year. There was a foreign currency loss of $288,000 in the first quarter of fiscal 2009 compared to a loss of $75,000 in the same period last year.

The Company recorded a loss before income taxes of $218,000 compared to an income before income taxes of $482,000 in the same period last year, a reduction of $700,000. Adverse foreign currency fluctuations decreased pretax income by $248,000. Lower shipment volumes, partially offset by operating expense savings reduced pretax income by $452,000. Net loss for the quarter was $141,000 or $0.04 per share compared to a net income of $313,000 and $0.10 per share in fiscal 2008.

Financial Condition

While the Company has paid regular quarterly dividends in the past, due to the current uncertain economic outlook, the Board of Directors suspended payment of dividends for the first fiscal quarter of 2009 and will consider whether to resume paying dividends on a quarter by quarter basis. In the first fiscal quarter, the Company paid a dividend declared for the fourth fiscal quarter of 2008 of $.03 per share, which amounted to $98,000. Cash balances at the end of the first quarter of fiscal 2009 were $744,000, compared to $1,630,000 on September 30, 2008, a decrease in cash of $886,000 in the first three months of fiscal 2009.

In the first three months of fiscal 2009, there was a net loss of $141,000, and operating activities used $481,000 of cash. Receivables decreased by $558,000, which generated cash during the quarter and the number of days sales in receivables reduced in the first three months of fiscal 2009 from 65 days at September 30, 2008 to 63 days at December 27, 2008. Adjusted for the effects of currency, an increase in inventories of $322,000 and reductions in both accounts payable and accrued expenses of $220,000 and $321,000 respectively, reduced cash balances during the first fiscal quarter. The payment of the dividend declared for the fourth fiscal quarter of fiscal 2008 amounted to $98,000. Capital expenditures in the first three months were $59,000. Exchange rate changes decreased reported cash by $248,000 in the first three months of fiscal 2009.

The Company has no long-term debt but has overdraft facilities of approximately $1.5 million in the UK and of $130,000 in France. At the end of the first quarter of fiscal 2009, the Company had no borrowings against these overdraft facilities. The UK overdraft facilities are secured by a long leasehold property owned by the Company and the French overdraft facilities are unsecured. In line with normal practice in Europe, both facilities can be withdrawn on demand by the bank. Accordingly, management does not rely on their availability in projecting the adequacy of the Company's capital resources.

Tech/Ops Sevcon Inc's capital resources and projected cash flows from operations, in the opinion of management, are adequate for projected operations and capital spending programs over the next twelve months. Capital spending programs are not expected to be significantly higher than depreciation over the next twelve months and projected volume is not expected to require significant additional cash resources. However, as discussed above, current economic conditions and the global decline in business activity are having a negative effect on the Company's business. If these conditions continue, that may materially reduce the cash the Company is able to generate from operations, which may cause it to reduce the amounts it is able or willing to use for the foregoing purposes. If the Company is unable to generate sufficient cash from operations and if the bank overdraft facilities are withdrawn, the Company would need to raise additional debt or equity capital from other sources to avoid significantly curtailing its business and materially adversely affecting its results.