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. Important factors that could cause these statements not to be realized include the risks discussed under "Risk Factors" below and others discussed in this report.

CRITICAL ACCOUNTING ESTIMATES

As of December 29, 2012, there have been no material changes to the critical accounting estimates described in the Company's 2012 10-K. However, if the continuing worldwide economic troubles continue to have a negative effect on our business, estimates used in future periods may vary materially from those included in the Company's previous disclosures.

For example:

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

(ii) if actual future demand is less 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 adverseimpact on the Company's results.

OVERVIEW OF FIRST QUARTER

Results of Operations

Three months ended December 29, 2012

The following table compares the results by segment for the three months ended
December 29, 2012 with the same period in the prior year. The table shows the
effect of currency and volume changes in percentage terms:

                                         Three months ended                   Favorable (unfavorable) % change due to:
                                    December 29,      December 31,
                                            2012              2011             Total              Currency             Volume
Sales:
Controls - to external
customers                         $        6,202     $       8,073               (23 )                   -                (23 )
Capacitors - to external
customers                                    438               442                (1 )                   2                 (3 )
Capacitors - inter-segment                     2                 5               (60 )                   -                (60 )
Capacitors - total                           440               447                (2 )                   2                 (4 )
Total sales to external
customers                                  6,640             8,515               (22 )                   -                (22 )
Gross Profit:
Controls                                   2,105             2,836               (26 )                   2                (28 )
Capacitors                                   135               146                (8 )                   2                (10 )
Total                                      2,240             2,982               (25 )                   1                (26 )
Selling research and
administrative expenses:
Controls                                   3,248             2,540               (28 )                  (1 )              (27 )
Capacitors                                   149               174                14                    (1 )               15
Unallocated corporate expense                 28                16               (75 )                   -                (75 )
Total                                      3,425             2,730               (25 )                  (1 )              (24 )
Operating income (loss):
Controls                                  (1,143 )             296              (486 )                   5               (491 )
Capacitors                                   (14 )             (28 )              49                     5                 44
Unallocated corporate expense                (28 )             (16 )             (75 )                   -                (75 )
Total                                     (1,185 )             252              (570 )                   6               (576 )
Other income and expense                    (225 )             121              (286 )                (420 )              134
(Loss) income before income tax           (1,410 )             373              (478 )                (132 )             (346 )
Income tax benefit (provision)               108               (89 )             221                   110                111
Net (loss) income                 $       (1,302 )   $         284              (558 )                (139 )             (419 )

Sales in the first quarter of 2013 were $6,640,000 compared to $8,515,000 in the same quarter last year. This decrease was mainly in our controls business and reflected lower sales in our traditional off-road markets, as well as lower demand in the on-road sector. Foreign currency exchange rates were similar to last year and had little effect on reported sales.

Across all markets in the first quarter of 2013 the Company experienced slower demand from the middle of October to the beginning of December, after which order intake improved to a more traditional level. The higher level of order flow continued through January although there can be no assurance that this situation will continue. This, coupled with shorter lead times from customers, were the main reasons for the sales shortfall year-on-year.

In the controls business segment, sales were down from the first quarter last year in two of our three main geographic markets. Excluding foreign currency effects, revenues were down 44% from the first quarter last year in Europe, reflecting the ongoing macroeconomic weakness in that region. Sales were down in North America by 18%, but up 17% in the Far East market. The growth in the Far East was principally in Japan where we continue to see recovery after the tsunami in 2011. As in the fourth quarter of 2012, the declines in Europe and North America were centered in our traditional off-road markets for construction, distribution, mining, airport ground support and utility applications. We believe that this is due to the continued effects of a challenging macroeconomic environment, particularly in Europe. Customer demand in our fork lift truck segment was essentially flat on a year-over-year basis, slowing from the fourth quarter of 2012. In the on-road EV market, product sales to customers decreased overall from the first quarter last year. As in fourth quarter of 2012, shipments for four-wheel applications were down on a year-over-year basis, reflecting seasonal effects, technology adoption issues and consequential weak end-market demand.

In the capacitor business, volumes shipped were essentially flat compared to the first quarter last year, with higher demand from railway signaling customers offset by lower customer demand from the industrial sector.

Gross profit of $2,240,000 was 33.7% of sales in the first quarter, compared to $2,982,000 or 35.0% of sales in the same quarter last year. The reduction in the gross profit percentage compared to the prior year was largely due to fixed overhead costs being a higher percentage of sales as sales volumes decreased.

Selling, research and administrative expense in the first quarter of 2013 was $3,425,000, an increase of $695,000, or 25%, compared to the same period last year. In addition to engineering and sales staff hired in 2012, this increase reflects a final round of consulting and legal expenses related to the replacement of our defined benefit U.K. pension plan with a defined contribution arrangement effective October 1, 2012. Engineering and research and development expense as a percentage of total sales were 16.3% in the first quarter of fiscal 2013, compared with 9.6% in the first quarter of last year. This reflects our strong focus on product development as well as the year-over-year decline in revenue.

There was an operating loss for the first quarter of 2013 of $1,185,000; this compares with operating income of $252,000 in the same period last year. This is our first quarterly operating loss since the onset of the recession in the second quarter of 2009.

In the first quarter of 2013, interest expense was $24,000, a decrease of $32,000 compared to the prior year due to the Company's U.K. bank overdraft facility not being used during the first quarter of 2013. There was a foreign currency loss of $201,000 in the first quarter of 2013 compared to a gain of $154,000 in the same period last year.

The Company recorded a loss before income taxes of $1,302,000 in the first quarter of 2013 compared to income before income taxes of $284,000 in the same period last year, and the Company recorded an income tax benefit of $108,000 compared with an income tax provision of $89,000 in the same period last year. The low tax rate in the first quarter of 2013 largely reflects the impact of the continued reduction in the corporate income tax rate in the U.K. and also the availability in the U.K. of favorable research and development tax credits which further reduces our effective U.K. income tax rate. There was a net loss after income tax benefit for the quarter of $1,302,000 or a loss of $.39 per diluted share, compared to net income after tax of $284,000, or income per diluted share of $.08, in the same quarter last year.

As discussed in Part II, Item 1A, "Risk Factors," the continuing debt crisis in certain European countries poses significant potential risks to the Company's business, financial position and results of operations.

Financial Condition

Cash balances at the end of the first quarter of 2013 were $1,289,000, compared to $2,823,000 on September 30, 2012, a decrease in cash of $1,534,000 in the first three months of 2013.

In the first three months of 2013, operating activities used $1,459,000 of cash. Excluding the impact of currency fluctuations, receivables decreased by $540,000, payables decreased by $641,000, and inventories increased by $62,000 in the quarter. The number of days sales in receivables decreased by one day from 64 day's sales at September 30, 2012 to 63 days sales at December 29, 2012. Capital expenditures in the first three months were $145,000. Exchange rate changes increased reported cash by $76,000 in the first three months of 2013.

The Company had a U.K. bank loan of $107,000, of which $44,000 was short-term and $63,000 long-term debt at December 29, 2012. It has overdraft facilities in the United Kingdom amounting to $1,450,000 which were unused as of December 29, 2012 and September 30, 2012. The overdraft facility of the U.K. capacitor subsidiary is secured by a legal charge over the facility owned and occupied by that company. The overdraft facility of the U.K. controls subsidiary is secured by a legal charge over a facility owned by that company. Both facilities were renewed in the third quarter of 2012 for a further period of twelve months but, in line with normal practice in Europe, can be withdrawn on demand by the bank. Management believes that, if these facilities were withdrawn, adequate alternative credit resources would be available. However, this would depend on the Company's situation and the economic environment at the time. Accordingly, management does not rely on their availability in projecting the adequacy of the Company's capital resources.

The Company's wholly owned subsidiary, Sevcon USA, Inc., has a $3,500,000 secured revolving credit facility with RBS Citizens, National Association for working capital and general corporate purposes. The obligations under the revolving credit facility are guaranteed by the Company and are secured by all of the assets of Sevcon USA, Inc. and a pledge of all of the capital stock of Sevcon USA, Inc. The facility imposes customary limitations on Sevcon USA, Inc.'s ability to, among other things, pay dividends, make distributions, and incur additional indebtedness. Under the facility, Sevcon USA, Inc. must maintain, on a quarterly basis, a debt to tangible net worth ratio of no more than 2.40:1 and a debt service coverage ratio of no less than 1.25:1 for each rolling twelve-month period. At December 29, 2012, the Company was not in compliance with this covenant as the debt service coverage ratio was 1.11:1, but RBS Citizens has provided the Company with a waiver with regard to this non-compliance. Upon entering into the revolving credit facility, Sevcon USA, Inc. drew down $1,700,000, which was the total amount outstanding at December 29, 2012. The revolving credit facility will expire on June 14, 2014 when all outstanding principal and unpaid interest will be due and payable in full.

There were no significant capital expenditure commitments at December 29, 2012. It is estimated that the Company will make contributions to its U.K. and U.S. defined benefit pension plans of approximately $512,000 in fiscal 2013; should the Company suffer a material reduction in revenues in 2013 this commitment could adversely impact the Company's financial position. In the opinion of management, the Company's requirements for working capital to meet projected operational and capital spending in both the short and long term can be met by a combination of existing cash resources, future earnings and existing borrowing facilities in Europe. However, the outlook continues to remain uncertain, given the continuing worldwide economic situation and in particular the low economic growth in Europe and North America and the continuing debt crisis in Europe. Any material reduction in revenues will have a materially adverse impact on the Company's financial position, which would be exacerbated if any of the Company's lenders withdraws or reduces available credit. 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.