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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

MILASTAR CORPORATION

(Exact name of registrant as specified in its charter)

(952) 929-7815

Registrant's telephone number, including area code

Not Applicable

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

At December 10, 2002, 2,723,264 shares of common stock of the Registrant were issued and outstanding.

MILASTAR CORPORATION AND SUBSIDIARIES

PART I

Item 1. Financial Statements

The condensed consolidated financial statements included herein have been prepared by Milastar Corporation (the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. Operating results for the six months ended October 31, 2002 are not necessarily indicative of the results that may be expected for the year ending April 30, 2003. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended April 30, 2002.

The condensed consolidated financial statements included herein, which are unaudited, include, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated financial position and results of operations of the Company for the periods presented.

MILASTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

LIABILITIES AND STOCKHOLDERS' EQUITY

MILASTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

MILASTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended October 31,

(Unaudited)

MILASTAR CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2002 and 2001

(Unaudited)

1 CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of Milastar Corporation (the "Company") reflect the financial position and results of operations of the Company and its wholly owned subsidiaries, after elimination of all material intercompany transactions and balances.

The consolidated financial statements as of October 31, 2002 and for the three and six month periods ended October 31, 2002 and October 31, 2001, included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The interim consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's 2002 Annual Report to Shareholders and incorporated by reference in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission. The result of operations for the interim period should not be considered indicative of the results to be expected for the entire year.

2 NET INCOME PER COMMON SHARE

The following table presents a reconciliation of the denominators used in the computation of net income per common share - basic and net income per common share - diluted for the three and six month periods ended October 31, 2002 and 2001:

			Three Months Ended October 31,				Six Months Ended October 31,
	2002		2001		2002		2001
Weighted shares outstanding - basic	2,723,264		2,723,264		2,723,264		2,723,264
Weighted shares assumed upon exercise of stock options	0		83,831		86,419		102,140
Weighted shares outstanding - diluted	2,723,264		2,807,095		2,809,683		2,825,404
Options excluded from the net income per share calculations because their exercise prices were greater than the average market price.	955,832		110,000		530,832		0

3 LONG TERM DEBT

In July 2002, the Company established a term note payable in the amount of $500,000 for the purpose of borrowing money for the purchase of capital equipment. The note is payable in monthly installments of $9,286 including interest at 2.5% above the LIBOR rate through August, 2007.

4 INCOME TAXES

At October 31, 2002, the Company has net operating loss carryforwards for federal purposes of approximately $1,047,000 which are available to offset future federal taxable income, if any, and expire between April 30, 2010 and April 30, 2022. The Company also has net operating loss carryforwards for state purposes of $210,000 which are available to offset future state taxable income, if any, and expire between April 30, 2010 and April 30, 2017. The Company also has federal and state alternative minimum tax credit carryforwards of approximately $74,000 which are available to reduce future federal and state regular income taxes, if any, over an indefinite period. Future changes in ownership may place limitations on the use of these net operating loss carryforwards. The Company has recorded a full valuation allowance against the deferred tax asset due to the uncertainty of realizing the related benefits.

5 NEW ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Standards (SFAS) No. 145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The Company believes the adoption of SFAS No. 145 will not have a material effect on the Company's consolidated financial position or results of operation.

In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires the recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred versus the date the Company commits to an exit plan. In addition, SFAS No. 146 states the liability should be initially measured at fair value. The requirements of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company believes the adoption of SFAS No. 146 will not have a material effect on the Company's consolidated financial position or results of operations.

In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions". SFAS No. 147 is effective October 1, 2002. The Company believes the adoption of SFAS No. 147 will not have a material effect on the Company's consolidated financial position or results of operations.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three Months Ended October 31, 2002 as Compared with the Three Months Ended October 31, 2001. The Company recorded sales of $2,414,000 during the second quarter of fiscal year 2003 as compared with $2,157,000 for the same period last year, a $257,000 (12%) increase. The increase was primarily attributable to additional work received from existing customers.

Cost of sales of $1,718,000 (71% of net sales) during the second quarter of fiscal year 2003 increased $206,000 (14%) from $1,512,000 (70% of net sales) for the same period a year earlier. The increase was primarily attributable to increased labor costs, factory supplies and outside services. Gross margin increased to $696,000 as compared with $645,000 for the prior year second quarter.

Selling, general and administrative (SG&A) expenses of $506,000 (21% of net sales) increased $9,000 (2%) from $497,000 (23% of net sales) for the same period a year earlier. The change in SG&A expenses is primarily due to immaterial fluctuations. SG&A expenses are relatively fixed and as such are not expected to change significantly in the near future.

The Company recorded operating income of $168,000 in the second quarter of fiscal 2003 as compared with operating income of $125,000 recorded in the prior year second quarter. The increase in operating income in the second quarter of fiscal year 2003 is primarily attributable to higher sales and relatively fixed SG&A costs.

Total other expense amounted to $67,000 in the second quarter of fiscal 2003 as compared with other expense of $86,000 in the second quarter of last year. Other expense in both second quarters relates primarily to interest expense, which decreased $13,000 due to lower interest rates.

The Company recorded net income of $98,000 in the second quarter of fiscal 2003 as compared with net income of $36,000 in the prior year second quarter.

Six Months Ended October 31, 2002 as Compared with the Six Months Ended October 31, 2001. The Company recorded sales of $4,650,000 during the first six months of fiscal year 2003 as compared with $4,221,000 for the same period last year, a $429,000 (10%) increase. The increase was primarily attributable to additional work received from existing customers.

Cost of sales of $3,354,000 (72% of net sales) during the first six months of fiscal year 2003 increased $389,000 (13%) from $2,965,000 (70% of net sales) for the same period a year earlier. The increase was primarily attributable to increased labor costs, factory supplies and outside services. Gross margin increased to $1,296,000 as compared with $1,256,000 for the prior year six months.

Selling, general and administrative (SG&A) expenses of $975,000 (21% of net sales) decreased $9,000 from $984,000 (23% of net sales) for the same period a year earlier. The change in SG&A expenses is primarily due to immaterial fluctuations. SG&A expenses are relatively fixed and as such are not expected to change significantly in the near future.

The Company recorded operating income of $276,000 in the first six months of fiscal 2003 as compared with operating income of $235,000 recorded in the prior year six months. The increase in operating income in the first six months of fiscal year 2003 is primarily attributable to higher sales and relatively fixed SG&A costs.

Total other expense amounted to $132,000 in the first six months of fiscal 2003 as compared with other expense of $170,000 in the same period of last year. Other expense in both six month periods relates primarily to interest expense, which decreased $26,000 due to lower interest rates.

The Company recorded net income of $139,000 in the first six months of fiscal 2003 as compared with net income of $60,000 in the prior year six months.

Liquidity and Capital Resources

At October 31, 2002, the Company had working capital of $18,000 compared with $69,000 of negative working capital at April 30, 2002. Cash and accounts receivables represented 67% (69% at April 30, 2002) and 12% (11% at April 30, 2002) of total current assets and total assets, respectively. During the six months of fiscal 2003, net cash provided by operating activities amounted to $434,000 compared to $320,000 provided by operating activities in the first six months of fiscal 2002. In July 2002, the Company established a term note payable in the amount of $500,000 for the purpose of borrowing money for the purchase of capital equipment. Working capital requirements for the first six months of fiscal 2003 was funded primarily from available cash, cash generated from operations, short-term borrowings under the line of credit and issuance of long-term debt. The Company believes anticipated cash flows from operations and its line of credit will be adequate to satisfy projected operating requirements through the next twelve months.

Critical Accounting Policies

The Company's estimates related to certain assets and liabilities are an integral part of the consolidated financial statements. These estimates are considered critical to the consolidated financial statements because they require subjective and complex judgements.

Allowance for doubtful accounts - The Company records a reserve for accounts receivable which are potentially uncollectible. The reserve is established by estimating the amounts that are potentially uncollectible based on a review of customer accounts, age of the receivable, the customer's financial condition and industry, and general economic conditions. Results could be materially different if economic conditions worsened for the Company's customers.

Forward-Looking Statements

Certain statements contained in Management's Discussion and Analysis and elsewhere in the 10-Q are forward-looking statements. These statements may discuss, among other things, expected growth, future revenues and future performance. The forward-looking statements are subject to risks and uncertainties, including, but not limited to, competitive pressures, inflation, consumer debt levels, currency exchange fluctuations, trade restrictions, changes in tariff and freight rates, capital market conditions and other risks indicated in the Company's filings with the Securities and Exchange Commission. Actual results may materially differ from anticipated results described in these statements.

Item 3. Qualitative and Quantitative Disclosures About Market Risk.

Market Risks

The Company is exposed to certain market risks with its long-term debt and $500,000 line of credit of which $100,000 is outstanding at October 31, 2002. The majority of long-term debt bears interest at 2.5% above the LIBOR rate and the line of credit bears interest at the bank's reference rate.

Item 4. Disclosure Controls and Procedures.

Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14(c) of the Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in alerting them in a timely basis to material information relating to the Company required to be disclosed in the Company's periodic SEC reports. There have been no significant changes in the Company's internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

PART II

Items 1 thru 5

No response to these items is furnished, since in each case the appropriate response would be either not applicable or none.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

99.1 A certification of the Chief Executive Office pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002, 18 U.S.C. Section 1350.

99.2 A certification of the Chief Financial Office pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002, 18 U.S.C. Section 1350.

(b) Reports on Form 8-K: None

S I G N A T U R E

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this interim report to be signed on its behalf by the undersigned, there unto duly authorized.

MILASTAR CORPORATION

Dated: December 12, 2002

CERTIFICATIONS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, J. Russell Duncan, Chief Executive Officer of Milastar Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Milastar Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function);

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

CERTIFICATIONS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dennis J. Stevermer, Chief Financial Officer of Milastar Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Milastar Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function);

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.