SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
-- ACT OF 1934
For the transition period from to
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Commission File No. 1 - 07109
SERVOTRONICS, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 16-0837866
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1110 Maple Street, Elma, New York 14059-0300
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(Address of principal executive offices)
716-655-5990
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(Issuer's telephone number, including area code)
Check whether 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 .
--- ---
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes ; No X
------ ------
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 April 30, 2006
------------------------------------ ------------------------------------
Common Stock, $.20 par value 2,388,857
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
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- 1 -
INDEX
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PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements (Unaudited)
a) Consolidated balance sheet, March 31, 2006 3
b) Consolidated statement of operations for the three months ended
March 31, 2006 and 2005 4
c) Consolidated statement of cash flows for the three months ended
March 31, 2006 and 2005 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 12
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 6. Exhibits 14
Signatures 15
- 2 -
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($000's omitted except per share data)
(Unaudited)
March 31, 2006
--------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,635
Accounts receivable 3,760
Inventories 7,478
Deferred income taxes 391
Other assets 895
-------------
Total current assets 16,159
-------------
Property, plant and equipment, net 6,155
Other non-current assets 591
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$ 22,905
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 382
Accounts payable 878
Accrued employee compensation and benefit costs 1,135
Accrued income taxes 81
Other accrued liabilities 263
-------------
Total current liabilities 2,739
-------------
Long-term debt 4,963
Deferred income taxes 388
Other non-current liabilities 385
Shareholders' equity:
Common stock, par value $.20; authorized
4,000,000 shares; issued 2,614,506 shares 523
Capital in excess of par value 13,033
Retained earnings 3,880
Accumulated other comprehensive loss (186)
-------------
17,250
Employee stock ownership trust commitment (2,034)
Treasury stock, at cost 154,442 shares (786)
-------------
Total shareholders' equity 14,430
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$ 22,905
=============
See notes to consolidated financial statements
- 3 -
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
($000's omitted except per share data)
(Unaudited)
Three Months Ended
March 31,
2006 2005
--------- ---------
Net revenues $ 5,678 $ 5,684
Costs and expenses:
Cost of goods sold, exclusive of depreciation 4,125 4,250
Selling, general and administrative 886 1,008
Interest 61 48
Depreciation and amortization 172 166
--------- ---------
5,244 5,472
--------- ---------
Income before income tax provision 434 212
Income tax provision 161 78
--------- ---------
Net income $ 273 $ 134
========= =========
Income per share:
Basic
-----
Net income per share $ 0.13 $ 0.06
========= =========
Diluted
-------
Net income per share $ 0.12 $ 0.06
========= =========
See notes to consolidated financial statements
- 4 -
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($000's omitted)
(Unaudited)
Three Months Ended
March 31,
2006 2005
--------- ---------
CASH FLOWS RELATED TO OPERATING ACTIVITIES:
Net income $ 273 $ 134
Adjustments to reconcile net income to net
cash (used) provided by operating activities -
Depreciation and amortization 172 166
Change in assets and liabilities -
Accounts receivable 15 (458)
Inventories (920) (11)
Prepaid income taxes - (15)
Other assets 35 41
Other non-current assets 57 (20)
Accounts payable (12) 95
Accrued employee compensation and benefit costs 19 44
Other accrued liabilities (18) 104
Accrued income taxes (248) (10)
---------- ----------
Net cash (used) provided by operating activities (627) 70
---------- ---------
CASH FLOWS RELATED TO INVESTING ACTIVITIES:
Capital expenditures - property, plant and
equipment (56) (160)
---------- ----------
Net cash used in investing activities (56) (160)
---------- ----------
CASH FLOWS RELATED TO FINANCING ACTIVITIES:
Principal payments on long-term debt (53) (52)
Investment in treasury shares (266) -
---------- ---------
Net cash used in financing activities (319) (52)
---------- ----------
Net decrease in cash and cash equivalents (1,002) (142)
Cash and cash equivalents at beginning of period 4,637 2,106
--------- ---------
Cash and cash equivalents at end of period $ 3,635 $ 1,964
========= =========
See notes to consolidated financial statements
- 5 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000's omitted in tables except for per share data)
1. Basis of presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles for
complete financial statements.
The accompanying consolidated 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 three months ended March 31, 2006
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2006. The consolidated financial statements should be read in
conjunction with the annual report and the notes thereto.
2. Summary of significant accounting policies
------------------------------------------
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of Servotronics,
Inc. and its wholly-owned subsidiaries (the "Company").
Cash and cash equivalents
-------------------------
The Company considers cash and cash equivalents to include all cash
accounts and short-term investments purchased with an original maturity of three
months or less.
Revenue recognition
-------------------
Revenues are recognized as services are rendered or as units are shipped
and at the designated FOB point consistent with the transfer of title, risks and
rewards of ownership. Such purchase orders generally include specific terms
relative to quantity, item description, specifications, price, customer
responsibility for in-process costs, delivery schedule, shipping point, payment
and other standard terms and conditions of purchase and may provide for progress
payments based on in-process costs as they are incurred.
Inventories
-----------
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.
Shipping and handling costs
---------------------------
Shipping and handling costs are classified as a component of cost of goods
sold.
Property, plant and equipment
-----------------------------
Property, plant and equipment is carried at cost; expenditures for new
facilities and equipment, and expenditures which substantially increase the
useful lives of existing plant and equipment are capitalized; expenditures for
maintenance and repairs are expensed as incurred. Upon disposal of properties,
the related cost and accumulated depreciation are removed from the respective
accounts and any profit or loss on disposition is included in income.
- 6 -
Depreciation is provided on the basis of estimated useful lives of
depreciable properties, primarily by the straight-line method for financial
statement purposes and by accelerated methods for tax purposes. Depreciation
expense includes the amortization of capital lease assets. The estimated useful
lives of depreciable properties are generally as follows:
Buildings and improvements 5-39 years
Machinery and equipment 5-15 years
Tooling 3-5 years
Income taxes
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of operating
loss and credit carryforwards and temporary differences between the carrying
amounts and the tax bases of assets and liabilities. The Company and its
subsidiaries file a consolidated federal income tax return and separate state
income tax returns.
Employee stock ownership plan
-----------------------------
Contributions to the employee stock ownership plan are determined annually
by the Company according to plan formula.
Impairment of long-lived assets
-------------------------------
The Company reviews long-lived assets for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable based on undiscounted future operating cash
flow analyses. If an impairment is determined to exist, any related impairment
loss is calculated based on fair value. Impairment losses on assets to be
disposed of, if any, are based on the estimated proceeds to be received, less
costs of disposal.
Use of estimates
----------------
The preparation of the consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
New accounting pronouncements
-----------------------------
During the year ended December 31, 2005, the Financial Accounting Standards
Board (FASB) issued a revision to SFAS 123 entitled SFAS 123 R - "Share-Based
Payment", requiring companies to include the fair value of stock options granted
as an expense in the statement of operations. This revision became effective and
was adopted by the Company on January 1, 2006. See note 6, Common shareholders'
equity.
During the year ended December 31, 2004, the FASB issued SFAS 151,
"Inventory Costs". This Statement amends the guidance in Accounting Research
Bulletin (ARB) No. 43, Chapter 4, "Inventory Pricing", to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). SFAS 151 requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of
"abnormal". In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. Statement 151 is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005, with earlier
application permitted in certain circumstances. The Company adopted SFAS 151 on
January 1, 2006 and the adoption of this new standard did not have a significant
impact on the Company's consolidated financial statements.
- 7 -
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, competition
from expanding manufacturing capabilities and technical sophistication of
low-cost developing countries, particularly in South and East Asia, currency
policies in relation to the U.S. dollar of some major foreign exporting
countries so as to maintain or increase a pricing advantage of their exports
vis-a-vis U.S. manufactured goods, 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.
Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable,
inventories, accounts payable and accrued expenses are reasonable estimates of
their fair value due to their short maturity. Based on variable interest rates
and the borrowing rates currently available to the Company for loans similar to
its long-term debt, the fair value approximates its carrying amount.
3. Inventories
-----------
March 31, 2006
--------------
Raw materials and common parts $ 2,719
Work-in-process 4,098
Finished goods 930
---------
7,747
Less common parts expected to be used after one year
(classified as long-term) (269)
---------
$ 7,478
=========
4. Property, plant and equipment
-----------------------------
March 31, 2006
--------------
Land $ 25
Buildings 6,537
Machinery, equipment and tooling 10,772
---------
17,334
Less accumulated depreciation and amortization (11,179)
---------
$ 6,155
=========
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 March 31, 2006, accumulated amortization on the building
amounted to approximately $1,600,000. 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.
- 8 -
5. Long-term debt
--------------
March 31, 2006
--------------
Industrial Development Revenue Bonds; secured by an equivalent
letter of credit from a bank with interest payable monthly
at a floating rate (3.39% at March 31, 2006) (A) $ 3,980
Term loan payable to a financial institution;
interest at LIBOR plus 2% (6.00%
at March 31, 2006); quarterly principal payments of
$17,500 commencing January 1, 2005; payable in full
in the fourth quarter of 2009 413
Term loan payable to a financial institution;
interest at LIBOR plus 2% (6.41% at March 31, 2006)
quarterly principal payments of $26,786 through the
fourth quarter of 2011 616
Secured term loan payable to a government agency;
monthly payments of approximately $1,455 with
interest waived payable through second quarter of 2012 140
Secured term loan payable to a government agency;
monthly payments of $1,950 including interest
fixed at 3% payable through fourth quarter of 2015 196
---------
5,345
Less current portion (382)
---------
$ 4,963
=========
(A) 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.
The Company also has a $1,000,000 line of credit on which there is no
balance outstanding at March 31, 2006.
Certain lenders require the Company to comply with debt covenants as
described in the specific loan documents, including a debt service ratio. At
March 31, 2006, the Company was in compliance with all of its debt covenants.
- 9 -
6. Common shareholders' equity
---------------------------
Common stock
Number Capital in Other Total
of shares excess of Retained Treasury comprehensive shareholders'
issued Amount par value earnings ESOP stock loss equity
-----------------------------------------------------------------------------------------
Balance December
31, 2005 2,614,506 $523 $13,033 $3,609 ($ 2,034) ($ 520) ($ 186) $ 14,425
Net income - - - 273 - - - 273
Investment in treasury shares - - - - - (266) - (266)
Other - - - (2) - - - (2)
---------- ---- ------ ------- -------- -------- ------ --------
Balance March 31, 2006 2,614,506 $523 $13,033 $3,880 ($ 2,034) ($ 786) ($ 186) $ 14,430
========== ==== ======= ====== ======= ======== ====== ========
In January of 2006, the Company's Board of Directors authorized the
purchase by the Company of up to 250,000 shares of its common stock in the open
market or in privately negotiated transactions. As of March 31, 2006, the
Company has purchased, or committed to purchase, 81,557 shares under this
program.
In December 2004, the Financial Accounting Standards Board issued SFAS
123R, Share-Based Payment ("SFAS 123R"). SFAS 123R supersedes SFAS 123,
Accounting for Stock Based Compensation, and Accounting Principles Board Opinion
25, Accounting for Stock Issued to Employees ("APB 25") and its related
implementation guidance. On January 1, 2006, the Company adopted the provisions
of SFAS 123R using the modified prospective transition method. Under this
method, the Company is required to record compensation expense for all stock
based awards granted after the date of adoption and for the unvested portion of
previously granted awards that remain outstanding as of the beginning of the
adoption and prior periods that have not been restated. Under SFAS 123R,
compensation expense related to stock based payments are recorded over the
requisite service period based on the grant date fair value of the awards.
Prior to the adoption of SFAS 123R, the Company accounted for employee
stock options using the intrinsic value method in accordance with APB 25.
Accordingly, no compensation expense was recognized for stock options issued to
employees as long as the exercise price is greater than or equal to the market
value of the common stock at the date of grant. In accordance with SFAS 123, the
Company disclosed the summary of pro forma effects to reported net loss as if
the Company had elected to recognize compensation costs based on the fair value
of the awards at the grant date.
There were no options granted or exercised in the three month periods ended
March 31, 2006 or 2005. As of March 31, 2006, there was $3,900 of total
unrecognized compensation cost related to non-vested options granted under the
plan. That cost is expected to be recognized over a weighted average period of
three years. No shares vested during the three month periods ended March 31,
2006 or 2005. The pro forma effect on earnings for the three month period ended
March 31, 2005 had the Company accounted for options under the fair value method
in accordance with FAS 123R was not material.
- 10 -
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.
Incremental shares from assumed conversions are calculated as the number of
shares that would be issued, net of the number of shares that could be purchased
in the marketplace with the cash received upon stock option exercise.
Three Months Ended
March 31,
2006 2005
------ ------
Net income $ 273 $ 134
====== ======
Weighted average common shares
outstanding (basic) 2,085 2,071
Incremental shares from assumed
conversions of stock options 136 20
Weighted average common
shares outstanding (diluted) 2,221 2,091
Basic
-----
Net income per share $ 0.13 $ 0.06
====== =======
Diluted
-------
Net income per share $ 0.12 $ 0.06
====== =======
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,
commercial and 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.
Advanced Technology Consumer Products
Group Group Consolidated
----- ----- ------------
Three months ended Three months ended Three months ended
March 31, March 31, March 31,
2006 2005 2006 2005 2006 2005
-------- -------- ------- -------- --------- --------
Revenues from unaffiliated customers $ 3,706 $ 2,871 $ 1,972 $ 2,813 $ 5,678 $ 5,684
======== ======== ======= ======== ========= ========
Profit (loss) $ 1,057 $ 413 $ (203) $ 197 $ 854 $ 610
======== ======== ======== ========
Depreciation and amortization $ (128) $ (126) $ (44) $ (40) (172) (166)
========= ========= ======== =========
Interest expense (61) (48)
General corporate expense (187) (184)
---------- ---------
Income before income taxes $ 434 $ 212
========= ========
- 11 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------- ---------------------------------------------------------
Management Discussion
---------------------
During the three month period ended March 31, 2006 and for the comparable
period ended March 31, 2005, approximately 28% and 45% respectively, of the
Company's revenues were derived from contracts with agencies of the U.S.
Government or their prime contractors and their subcontractors. Sales of
products sold for government applications have decreased as the result of the
previously reported scheduled completion of a significant order to the CPG. The
Company believes that government involvement in military operations overseas
will continue to have a direct impact on the financial results in both the
Advanced Technology and Consumer Products markets. 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 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 period to period dollar and percentage increase or decrease of
such items as compared to the indicated prior period.
Relationship to Period to Period to
net revenues period $ period %
three months ended increase increase
March 31, (decrease) (decrease)
2006 2005 06-05 06-05
---- ---- ----- -----
Net revenues
Advanced Technology Group 65.3% 50.5% $ 836 29.1%
Consumer Products Group 34.7 49.5 (841) (29.9)
---- ---- ----- ------
100.0 100.0 (5) (0.1)
Cost of goods sold, exclusive of
depreciation 72.6 74.8 (125) (2.9)
---- ---- ----- ----
Gross profit 27.4 25.2 120 8.4
---- ---- --- ---
Selling, general and administrative 15.6 17.7 (122) (12.1)
Interest 1.1 0.8 13 27.1
Depreciation and amortization 3.0 2.9 6 3.6
--- --- - ---
19.7 21.4 (103) 18.6
Income before income tax provision 7.7 3.8 223 105.7
Income tax provision 2.9 1.4 83 106.4
--- --- -- -----
Net income 4.8% 2.4% $ 140 105.2%
=== === ===== =====
The Company's consolidated net revenues for the three month period ended
March 31, 2006 remained consistent when compared to the same three month period
of 2005. Revenues at the Company's ATG increased by approximately $836,000. Such
increases are attributed to an increase in commercial shipments and price
increases under certain long-term agreements. Revenues at the Company's CPG
decreased by approximately $841,000, primarily due to a decrease in government
shipments as the result of the aforementioned scheduled completion of a
significant government order.
Gross margins for the three month period ended March 31, 2006 increased as
a percentage of sales when compared to the same period in 2005 primarily due to
the mix of products sold in the comparable periods with a larger percentage of
sales coming from the ATG.
- 12 -
Selling, general and administrative (SG&A) costs decreased approximately
12.1% when compared to the same three month period in 2005. This decrease is
primarily due to cost containment efforts for variable administrative related
expenses. These cost efforts include, but are not limited to, a restructure of
the administrative organization and procedure enhancements.
Interest expense increased for the quarter ended March 31, 2006 when
compared to the same period in 2005 due to an increase in market driven interest
rates.
The Company's effective tax rate continues to be approximately 37% of
pretax profits.
Net income increased $140,000 due to the positive effects of increases in
profit margin, price increases, successful cost containment activities and net
proceeds received related to the previously reported defalcation.
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 had a use of cash of
$627,000 from operations which was primarily related to the payment of income
taxes and the increase in inventory levels. A significant part of the inventory
increase is associated with U. S. Government Purchase orders that were shipped
before the end of the first quarter but because they were not yet received at
the U. S. government F.O.B. destination until after March 31, 2006, they were,
consistent with accounting pronouncements, classified as inventory in lieu of
accounts receivable at March 31, 2006. Also, certain current government
contracts required significant deliveries of raw material (i.e., steel, etc.)
and certain custom made parts in quantities that support extended periods of
production. These factors combine to represent 75% of the net inventory
increase. At March 31, 2006 the Company has working capital of approximately
$13.4 million of which $3.6 million was comprised of cash and cash equivalents.
As of March 31, 2006 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 March 31, 2006. The Company's projected debt maturities
are consistent with prior years.
In January of 2006, the Company's Board of Directors authorized the
purchase by the Company of up to 250,000 shares of its common stock in the open
market or in privately negotiated transactions. As of March 31, 2006, the
Company has purchased, or committed to purchase, 81,557 shares under this
program. The Company has financed this purchase program through its cash
reserves.
Item 3. CONTROLS AND PROCEDURES
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(a) Disclosure Controls and Procedures
----------------------------------
The Company carried out an evaluation under the supervision and with the
participation of its management, including the Company's Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the
Company's disclosure controls and procedures as of March 31, 2006. Based upon
that evaluation, the CEO and CFO concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to the material
information relating to the Company (or the Company's consolidated subsidiaries)
required to be included in the Company's 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 the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure.
- 13 -
(b) Changes in Internal Controls
--------------------------------
During the three month period ended March 31, 2006, there were no changes
in internal controls over financial reporting that have materially affected, or
is reasonably likely to affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
------- -----------------------------------------------------------
Purchases of Equity Securities by the Company and Affiliated Purchases
----------------------------------------------------------------------
Total Number of
Shares Purchased /
Committed to Maximum Number of
Total Number of Purchase as Part of Shares that may yet
Shares Purchased / Average Price Paid Publicly Announced be Purchased under
Period Committed to Purchase Per Share Plans or Programs the Plans or Programs
------------------------------ ---------------------- ---------------------- ---------------------- -----------------------
January 1 - January 31,
2006 -- -- -- 250,000
------------------------------ ---------------------- ---------------------- ---------------------- -----------------------
February 1 - February 28, -- -- -- 250,000
2006
------------------------------ ---------------------- ---------------------- ---------------------- -----------------------
March 1 - March 31,
2006 81,557 8.74 81,557 168,443
------------------------------ ---------------------- ---------------------- ---------------------- -----------------------
Total 81,557 8.74 81,557 168,443
------------------------------ ---------------------- ---------------------- ---------------------- -----------------------
Item 6. EXHIBITS
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31.1 Certification of 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 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
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. 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: May 11, 2006
SERVOTRONICS, INC.
By: /s/ Dr. Nicholas D. Trbovich, Chief Executive Officer
-----------------------------------------------------
Dr. Nicholas D. Trbovich
Chief Executive Officer
By: /s/ Cari L. Jaroslawsky, Chief Financial Officer
-----------------------------------------------------
Cari L. Jaroslawsky
Chief Financial Officer
By: /s/ Raymond C. Zielinski, Vice President
-----------------------------------------------------
Raymond C. Zielinski
Vice President
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