SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 2005
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-- EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ---------------------
Commission File No. 1 - 07109
SERVOTRONICS, INC.
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 16-0837866
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1110 Maple Street, Elma, New York 14059-0300
--------------------------------------------
(Address of principal executive offices)
716-655-5990
------------
(Issuer's telephone number, including area code)
Checkwhether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
-- --
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at August 31, 2005
---------------------------- -------------------------------------
Common Stock, $.20 par value 2,492,901
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
------ ------
-1-
INDEX
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements (Unaudited)
a) Independent Accountants' Report 3
b) Consolidated balance sheet, June 30, 2005 4
c) Consolidated statement of operations for the three and six months ended
June 30, 2005 and 2004 5
d) Consolidated statement of cash flows for the six months ended
June 30, 2005 and 2004 6
e) Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 6. Exhibits 14
Signatures 15
-2-
EXPLANATORY NOTE
Due to the circumstances described in Part I, Item 3 regarding internal
control procedures and deficiencies relating to payroll disbursements, our
predecessor independent registered public accounting firm was unable to complete
a review of the interim unaudited financial statements included in the Form
10-QSB for the quarter ended June 30, 2005 that was previously filed on August
22, 2005. The accompanying financial statements filed with this amended 10-QSB/A
now comply with the requirements of Item 310(b) of Regulation S-B as it relates
to interim financial statements. This form 10-QSB/A contains no changes in the
financial statements from the previously filed 10-QSB for period ended June 30,
2005.
PART I.
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
------ --------------------------------
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Servotronics, Inc.
We have reviewed the accompanying balance sheet of Servotronics, Inc. as of June
30, 2005 and the related consolidated statement of operations for the three and
six month periods ended June 30, 2005, and the related consolidated statement of
cash flows for the six months ended June 30, 2005. These interim financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the Public
Company Accounting Oversight Board. A review of interim financial information
consists principally of applying analytical procedures to financial data and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
/s/Freed Maxick & Battaglia, CPAs, P.C.
Buffalo, New York
September 29, 2005
-3-
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($000's omitted except per share data)
(Unaudited)
June 30, 2005
-------------
Assets
Current assets:
Cash $ 2,770
Accounts receivable 3,588
Inventories 6,435
Prepaid income taxes 14
Deferred income taxes 471
Other assets 1,267
------------
Total current assets 14,545
------------
Property, plant and equipment, net 6,407
Other non-current assets 554
------------
$ 21,506
============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 381
Accounts payable 707
Accrued employee compensation and benefit costs 855
Other accrued liabilities 115
Accrued income taxes 65
------------
Total current liabilities 2,123
------------
Long-term debt 5,294
Deferred income taxes 434
Other non-current liability 304
Shareholders' equity:
Common stock, par value $.20; authorized
4,000,000 shares; Issued 2,614,506 shares 523
Capital in excess of par value 13,033
Retained earnings 2,575
Accumulated other comprehensive loss (125)
-------------
16,006
Employee stock ownership trust commitment (2,135)
Treasury stock, at cost 121,605 shares (520)
-------------
Total shareholders' equity 13,351
------------
$ 21,506
============
See notes to consolidated financial statements and independent accountant's report
-4-
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
($000's omitted except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- --------- --------- ----------
Net revenues $ 6,136 $ 5,640 $ 11,819 $ 10,968
Costs and expenses:
Cost of goods sold, exclusive of depreciation 4,617 4,145 8,867 8,142
Selling, general and administrative 990 951 1,996 1,832
Interest 48 36 96 72
Depreciation and amortization 170 165 337 327
--------- --------- --------- ----------
5,825 5,297 11,296 10,373
--------- --------- --------- ----------
Income before income taxes 311 343 523 595
Income tax provision 116 128 194 222
--------- --------- --------- ----------
Net income $ 195 $ 215 $ 329 $ 373
========= ========= ========= ==========
Income Per Share:
Basic
-----
Net income per share $ 0.09 $ 0.11 $ 0.16 $ 0.18
========= ========= ========= ==========
Diluted
-------
Net income per share $ 0.09 $ 0.10 $ 0.15 $ 0.18
========= ========= ========= ==========
See notes to consolidated financial statements and independent accountant's report
-5-
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($000's omitted)
(Unaudited)
Six Months Ended
June 30,
2005 2004
---- ----
Cash flows related to operating activities:
Net income $ 329 $ 373
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 337 327
Change in assets and liabilities -
Accounts receivable (254) (748)
Inventories 406 25
Prepaid income taxes (14) -
Other assets 277 214
Other current assets (17) 3
Accounts payable (88) 277
Accrued employee compensation & benefit costs 50 162
Accrued income taxes (2) 63
Other accrued liabilities (37) 121
---------- ---------
Net cash provided by operating activities 987 817
--------- ---------
Cash flows related to investing activities:
Capital expenditures - property, plant &
equipment (217) (213)
---------- ----------
Net cash used in investing activities (217) (213)
---------- ----------
Cash flows related to financing activities:
Principal payments on long-term debt (106) (202)
---------- ----------
Net cash used in financing activities (106) (202)
---------- ----------
Net increase in cash 664 402
Cash at beginning of period 2,106 1,506
--------- ---------
Cash at end of period $ 2,770 $ 1,908
========= =========
See notes to consolidated financial statements and independent accountant's report
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000 omitted in tables except for per share data)
1. Basis of presentation
---------------------
The consolidated financial statements include the accounts of Servotronics,
Inc. (the "Company") and its majority owned subsidiaries.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
The accompanying financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods presented. All such adjustments are of a normal recurring
nature. Operating results for the six months ended June 30, 2005 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2005. The financial statements should be read in conjunction with
the annual report and the notes thereto.
2. Summary of risk factors and significant accounting policies
------------------------------------------------------------
Risk factors
------------
The aviation and aerospace industries as well as markets for the Company's
consumer products are facing new and evolving challenges on a global basis. The
success of the Company depends upon the trends of the economy, including
interest rates, income tax laws, governmental regulation, legislation, and other
risk factors. In addition, uncertainties in today's global economy, global
competition, the effect of terrorism, difficulty in predicting defense and other
government appropriations, the vitality of the commercial aviation industry and
its ability to purchase new aircraft, the willingness and ability of the
Company's customers to fund long-term purchase programs, volatile market demand
and the continued market acceptance of the Company's advanced technology and
cutlery products make it difficult to predict the impact on future financial
results.
Revenue recognition
-------------------
The Company's revenues are recognized when the risks and rewards of
ownership and title to the product are transferred to the customer as units are
shipped and as terms and conditions of purchase orders are met.
3. Inventories
-----------
June 30, 2005
-------------
Raw materials and common parts $ 3,271
Work-in-process 2,457
Finished goods 955
---------
6,683
Less common parts expected to be used after one year (248)
----------
$ 6,435
=========
Inventories are stated at the lower of standard cost or net realizable
value. Cost includes all cost incurred to bring each product to its present
location and condition, which approximates actual cost (first-in, first-out).
Market provisions in respect of net realizable value and obsolescence are
applied to the gross value of the inventory. Pre-production and start-up costs
are expensed as incurred.
-7-
4. Property, plant and equipment
-----------------------------
June 30, 2005
-------------
Land $ 25
Buildings 6,487
Machinery, equipment and tooling 10,563
--------
17,075
Less accumulated depreciation (10,668)
----------
$ 6,407
=========
Property, plant and equipment includes land and building under a $5,000,000
capital lease which can be purchased for a nominal amount at the end of the
lease term. As of June 30, 2005, accumulated amortization on the building
amounted to approximately $1,450,000. The associated current and long-term
liabilities are discussed in footnote 5 to the consolidated financial
statements. The Company believes that it maintains property and casualty
insurance in amounts adequate for the risk and nature of its assets and
operations and which are generally customary in its industry.
5. Long-term debt
--------------
June 30, 2005
--------------
Industrial Development Revenue Bonds; secured by a
letter of credit from a bank with interest payable monthly
at a floating rate (2.48% at June 30, 2005) $ 4,150
Term loan payable to a financial institution
interest at LIBOR plus 2% (5.10% at
June 30, 2005); quarterly principal payments of
$17,500 commencing January 1, 2005; payable in full
in the fourth quarter of 2009 465
Term loan payable to a financial institution
interest at LIBOR plus 2% (5.39% at June 30, 2005)
quarterly principal payments of $26,786 through the
fourth quarter of 2011 697
Secured term loan payable to a government agency,
monthly payments of approximately $1,455 with
interest waived payable through second quarter of 2012 154
Secured term loan payable to a government agency
monthly payments of $1,950 including interest
fixed at 3% payable through fourth quarter of 2015 209
----------
5,675
Less current portion (381)
----------
$ 5,294
==========
Industrial Development Revenue Bonds were issued by a government agency to
finance the construction of the Company's headquarters/Advanced Technology
facility. Annual sinking fund payments of $170,000 commenced December 1, 2000
and continue through 2013, with a final payment of $2,620,000 due December 1,
2014. The Company has agreed to reimburse the issuer of the letter of credit if
there are draws on that letter of credit. The Company pays the letter of credit
bank an annual fee of 1% of the amount secured thereby and pays the remarketing
agent for the bonds an annual fee of .25% of the principal amount outstanding.
The Company's interest under the facility capital lease has been pledged to
secure its obligations to the government agency, the bank and the bondholders.
-8-
The Company also has a $1,000,000 line of credit on which there was no
balance outstanding at June 30, 2005.
6. Common shareholders' equity
---------------------------
Common stock
------------ Accumulated
Number Capital in other
of shares excess of Retained Treasury Comprehensive comprehensive
issued Amount par value earnings ESOP stock income loss
-------------------------------------------------------------------------------------
Balance December
31, 2004 2,614,506 $523 $13,033 $2,246 ($ 2,135) ($ 520) ($125)
========= ==== ======= ===== ======= ======= =====
Comprehensive income
Net income - - - $ 329 - - $ 329 -
-----
Comprehensive income - - - - - - $ 329 -
---------- ---- ------ ------ -------- -------- ===== ----
Balance June 30, 2005 2,614,506 $523 $13,033 $2,575 ($ 2,135) ($ 520) ($125)
========= ==== ======= ====== ======== ======== =====
Earnings per share
------------------
Basic earnings per share are computed by dividing net earnings by the
weighted average number of shares outstanding during the period. Diluted
earnings per share are computed by dividing net earnings by the weighted average
number of shares outstanding during the period plus the number of shares of
common stock that would be issued assuming all contingently issuable shares
having a dilutive effect on earnings per share were outstanding for the period.
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
---- ---- ---- ----
Net income $ 195 215 $ 329 $ 373
====== ====== ====== =====
Weighted average common shares
outstanding (basic) 2,071 2,048 2,071 2,048
Incremental shares from assumed
conversions of stock options 65 52 69 32
Weighted average common
shares outstanding (diluted) 2,136 2,100 2,140 2,080
Basic
-----
Net income per share $ 0.09 $ 0.11 $ 0.16 $ 0.18
======= ====== ====== ======
Diluted
-------
Net income per share $ 0.09 $ 0.10 $ 0.15 $ 0.18
======= ====== ====== ======
7. Business segments
-----------------
The Company operates in two business segments, Advanced Technology Group
(ATG) and Consumer Products Group (CPG). The Company's reportable segments are
strategic business units that offer different products and services. The
segments are composed of separate corporations and are managed separately.
Operations in ATG involve the design, manufacture, and marketing of
servo-control components (i.e., control valves, actuators, etc.) for government
and commercial industrial applications. CPG's operations involve the design,
manufacture and marketing of a variety of cutlery products for use by consumers
and government agencies. The Company derives its primary sales revenue from
domestic customers, although a significant portion of finished products are for
foreign end use.
-9-
Six Month Advanced Consumer
Period Ended Technology Products
June 30, 2005 Group Group Consolidated
------------- ----- ----- ------------
Revenues from unaffiliated customers $ 6,364 $ 5,455 $ 11,819
========= ========= ==========
Profit $ 973 $ 351 $ 1,324
========= =========
Depreciation and amortization (337)
Interest expense (96)
General corporate expense (368)
-----------
Income before income taxes $ 523
==========
Six Month Advanced Consumer
Period Ended Technology Products
June 30, 2004 Group Group Consolidated
------------- ----- ----- ------------
Revenues from unaffiliated customers $ 5,329 $ 5,639 $ 10,968
========= ========= ==========
Profit $ 782 $ 476 $ 1,258
========= =========
Depreciation and amortization (327)
Interest expense (72)
General corporate expense (264)
-----------
Income before income taxes $ 595
==========
Three Month Advanced Consumer
Period Ended Technology Products
June 30, 2005 Group Group Consolidated
------------- ----- ----- ------------
Revenues from unaffiliated customers $ 3,494 $ 2,642 $ 6,136
========= ========= ==========
Profit $ 560 $ 153 $ 713
========= =========
Depreciation and amortization (170)
Interest expense (48)
General corporate expense (184)
-----------
Income before income taxes $ 311
==========
Three Month Advanced Consumer
Period Ended Technology Products
June 30, 2004 Group Group Consolidated
------------- ----- ----- ------------
Revenues from unaffiliated customers $ 2,658 $ 2,982 $ 5,640
========= ========= ==========
Profit $ 384 $ 292 $ 676
========= =========
Depreciation and amortization (165)
Interest expense (36)
General corporate expense (132)
-----------
Income before income taxes $ 343
==========
-10-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------- ---------------------------------------------------------
The following table sets forth for the period indicated the percentage
relationship of certain items in the consolidated statement of operations to net
revenues, and the percentage increase or decrease of such items as compared to
the indicated prior period.
Relationship to Period to Relationship to Period to
net revenues period $ net revenues period $
three months ended increase six months ended increase
June 30, (decrease) June 30, (decrease)
2005 2004 05-04 2005 2004 05-04
---- ---- ----- ---- ---- -----
Net revenues
Advanced Technology Group 56.9% 47.1% 31.5% 53.8% 48.6% 19.4%
Consumer Products Group 43.1% 52.9% (11.4%) 46.2% 51.4% (3.3%)
---- ----- -----
100.0% 100.0% 8.8% 100.0% 100.0% 7.8%
Cost of goods sold, exclusive of
depreciation 75.2% 73.5% 11.4% 75.0% 74.2% 8.9%
---- ---- ----- -----
Gross profit 24.8% 26.5% 1.6% 25.0% 25.8% 4.5%
---- ---- ----- -----
Selling, general and administrative 16.1% 16.9% 4.1% 16.9% 16.7% 9.0%
Interest 0.8% 0.6% 33.3% 0.8% 0.7% 33.3%
Depreciation and amortization 2.8% 2.9% 3.0% 2.9% 3.0% 3.1%
--- --- ---- ----
19.7% 20.4% 4.9% 20.6% 20.4% 8.9%
---- ---- ----- -----
Income before income taxes 5.1% 6.1% (9.3%) 4.4% 5.4% (12.1%)
Income tax provision 1.9% 2.3% (9.4%) 1.6% 2.0% (12.6%)
--- --- ---- ----
Net income 3.2% 3.8% (9.3%) 2.8% 3.4% (11.8%)
=== === ==== ====
Management Discussion
---------------------
During the six month period ended June 30, 2005 and for the comparable
period ended June 30, 2004, approximately 47% of the Company's revenues were
derived from contracts with agencies of the U.S. Government or their prime
contractors and their subcontractors. Total government sales are anticipated to
decrease in 2005 as a result of the scheduled completion of a significant
government order to the CPG as previously reported. The Company's business is
performed under fixed price contracts. Allocations of defense expenditures and
government involvement in overseas military operations have had an impact on the
Company's financial results. Sales of products sold for government applications
have increased approximately 9% for the six month period ended June 30, 2005
compared to the corresponding period of 2004. While the Company remains
optimistic in relation to these opportunities, it recognizes that sales to the
government are affected by defense budgets, the foreign policies of the U.S. and
other nations, the level of military operations and other factors and, as such,
it is difficult to predict the impact on future financial results. The Company's
commercial business is affected by such factors as uncertainties in today's
global economy, global competition, the vitality and ability of the commercial
aviation industry to purchase new aircraft, market demand and acceptance both
for the Company's products and its customers' products which incorporate
Company-made components.
Results of Operations
---------------------
The Company's consolidated results of operations for the six month period
ended June 30, 2005 showed an approximate $851,000 or 7.8% increase in net
revenues to $11,819,000 with a decrease in net income of approximately $44,000
or 11.8% when compared to the same six month period of 2004. The Company's
consolidated results of operations for the three month period ended June 30,
2005 showed an approximate $496,000 or 8.8% increase in net revenues to
$6,136,000 with a decrease in net income of approximately $20,000 or 9.3% when
compared to the same three month period of 2004.The increase in revenues is
primarily attributed to both increased government shipments and commercial
shipments at the Advanced Technology Group.
-11-
Gross profit for the six and three month periods ended June 30, 2005
remained consistent as a percentage of sales when compared to the same period in
2004. The Company continues to incur costs associated with prototype and
preproduction activities that are expensed in the period incurred. These costs
as well as product mix can contribute to fluctuations in gross profit from
period to period.
Selling, general and administrative (SG&A) costs increased approximately
9.0% when compared to the same six month period in 2004 and increased 4.1% for
the three month period ended June 30, 2005 when compared to the same three month
period in 2004. The increase is primarily attributable to costs incurred for
professional services and corporate governance necessitated by the
Sarbanes-Oxley Act as well as increased marketing of the expanded sales effort
of the Company. The Company expects these costs to continue to be significant
components of SG&A in the future.
Interest expense increased for the six months and quarter ended June 30,
2005 when compared to the same period in 2004 primarily due to an increase in
institutional debt and market driven interest rates.
The Company continues to take advantage of the tax benefit for
extraterritorial sales as well as the new manufacturing deductions allowable
under the American Jobs Creation Act of 2004, which is reflected in the
effective tax rate of approximately 37%.
Liquidity and Capital Resources
-------------------------------
The Company's primary liquidity and capital requirements relate to the
Company's working capital needs; primarily inventory, accounts receivable,
capital investments in facilities, machinery, tools/dies and equipment and
principal/interest payments on indebtedness. The Company's primary sources of
liquidity in 2005 have been from positive cash flows from operations. These cash
flows have been positively affected by efforts in inventory control and
satisfactory payment terms with suppliers and customers.
As of June 30, 2005 there are no material commitments for capital
expenditures.
The Company also has a $1,000,000 line of credit on which there was no
balance outstanding at June 30, 2005.
Item 3. CONTROLS AND PROCEDURES
------- -----------------------
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. As of June 30, 2005,
we carried out an evaluation under the supervision and with the participation of
our management, including our Chief Executive Officer ("CEO") and Interim Chief
Financial Officer ("ICFO"), of the effectiveness of our disclosure controls and
procedures. Based upon that evaluation, the CEO and ICFO concluded that as more
fully described below, as of June 30, 2005, our disclosure controls and
procedures were not effective in timely alerting them to the material
information relating to the Company (or the Company's consolidated subsidiaries)
required to be included in our periodic filings with the SEC, such that the
information relating to the Company, required to be disclosed in SEC reports (i)
is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and (ii) is accumulated and communicated to
the Company's management, including our CEO and ICFO, as appropriate to allow
timely decisions regarding required disclosure.
(b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. Other than as
described below, there has been no change in our internal control over financial
reporting that occurred during the fiscal quarter ended June 30, 2005 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
-12-
(c) IDENTIFIED CONTROLS AND PROCEDURE WEAKNESSES FOR PAYROLL DISBURSEMENTS.
As previously reported the Company discovered certain unauthorized disbursements
by a senior finance officer and reported this discovery to all appropriate
parties including the Company's Attorney, the Audit Committee, the Company's
Independent Auditors, the SEC, the AMEX and the District Attorney of Erie
County, New York. An investigation was immediately initiated and is continuing.
Although the Company has not yet received a definitive investigation report
it appears that such unauthorized disbursements by this individual have occurred
over a period of 22 1/2 years and amounts to, on average, approximately $107,000
per year after tax, for a total of approximately $2,400,000 after tax or
$4,000,000 before tax. The above amounts were expensed as incurred and the
associated tax benefits were received. Therefore, all future restitution, net of
recovery costs, will be reflected as additional income in the time periods they
are received. The subject individual, through his attorney, has offered to make
restitution to the extent possible. The Company has a $1,000,000 crime policy
with a $10,000 deductible. The individual is no longer an employee of the
Company and, to date, has cooperated with the investigation. At this stage, the
Company cannot reliably forecast its total net recovery.
We are currently not aware of any other weaknesses in our internal controls
and procedures, other than the weakness relative to payroll disbursements as
described above. In connection with this investigation, we will perform further
evaluation and implement the appropriate remedial action. Notwithstanding the
weakness in our controls and procedures relative to payroll disbursements,
management believes that the information contained in this Form 10-QSB/A,
including the financial statements contained herein, present, in all material
respects, our financial condition and results of operations as of the dates so
indicated.
We are only in the initial phases of establishing compliance under Section
404 of the Sarbanes-Oxley Act, which now will not be effective for our Company
until our fiscal year ending December 31, 2007. We anticipate expending
significant additional resources to evaluate and maintain appropriate controls
and procedures and to prepare the required financial and other information
during the process of establishing our Section 404 Sarbanes-Oxley controls and
procedures.
(d) LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS. Our management,
including the CEO and ICFO, does not expect that our disclosure controls and
procedures or our internal control over financial reporting will necessarily
prevent all fraud and material error. An internal control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of the control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions,
and/or the degree of compliance with the policies or procedures may change.
-13-
PART II
OTHER INFORMATION
Item 6. EXHIBITS
10(A)(1) Employment contract for Dr. Nicholas D. Trbovich, Chief
Executive Officer (Incorporated by reference to Exhibit
10(A)(1) to the Company's current report on Form 8-K filed on
August 18, 2005).
10(A)(4) Employment contract for Nicholas D. Trbovich, Jr., Vice
President (Incorporated by reference to Exhibit 10(A)(4) to
the Company's current report on Form 8-K filed on August 18,
2005).
31.1 Certification of Interim Chief Financial Officer pursuant to
Rule 13a-14 or 15d-14 of the Securities Exchange act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of Chief Executive Officer pursuant to Rule
13a-14 or 15d-14 of the Securities Exchange act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of Interim Chief Financial Officer pursuant to
18 U.S.C. 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Executive Officer pursuant to 18
U.S.C. 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
FORWARD-LOOKING STATEMENTS
In addition to historical information, certain sections of this Form 10-QSB/A
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as those pertaining to the Company's capital resources and profitability.
Forward-looking statements involve numerous risks and uncertainties. The Company
derives a material portion of its revenues from contracts with agencies of the
U.S. Government or their prime contractors. The Company's business is performed
under fixed price contracts and the following factors, among others discussed
herein, could cause actual results and future events to differ materially from
those set forth or contemplated in the forward-looking statements: uncertainties
in today's global economy and global competition, and difficulty in predicting
defense appropriations, the vitality of the commercial aviation industry and its
ability to purchase new aircraft, the willingness and ability of the Company's
customers to fund long-term purchase programs, and market demand and acceptance
both for the Company's products and its customers' products which incorporate
Company-made components. The success of the Company also depends upon the trends
of the economy, including interest rates, income tax laws, governmental
regulation, legislation, population changes and those risk factors discussed
elsewhere in this Form 10-QSB/A. Readers are cautioned not to place undue
reliance on forward-looking statements, which reflect management's analysis only
as of the date hereof. The Company assumes no obligation to update
forward-looking statements.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: September 29, 2005
SERVOTRONICS, INC.
By: /s/ Dr. Nicholas D. Trbovich, Chief Executive Officer
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Dr. Nicholas D. Trbovich
Chief Executive Officer
By: /s/ Cari L. Jaroslawsky, Interim Chief Financial Officer
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Cari L. Jaroslawsky
Interim Chief Financial Officer (effective 8/9/2005)
By: /s/ Raymond C. Zielinski, Vice President
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Raymond C. Zielinski
Vice President
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