CORRESP 7 filename7.txt [GRAPHIC EXCLUDED] JAECKLE FLEISCHMANN & MUGEL, LLP ATTORNEY AT LAW 12 FOUNTAIN PLAZA, BUFFALO, NEW YORK 14202-2292 TEL 716.856.0600 FAX 716.856.0432 Michael C. Donlon Direct Dial 716-843-3881 Associate E-mail: mdonlon@jaeckle.com September 30, 2005 Mail Stop 7010 Securities and Exchange Commission Washington, D.C. 20549 Attention: John Cash, Accounting Branch Chief RE: SERVOTRONICS, INC. (THE "COMPANY") FORM 10-KSB FOR FISCAL YEAR ENDED DECEMBER 31, 2004 FORM 10-QSB FOR FISCAL QUARTER ENDED MARCH 31, 2005 FILE NO. 1-07109 Ladies and Gentlemen: This letter is being filed with the Company's quarterly report on Form 10-QSB/A to respond to comments made by the Securities and Exchange Commission staff (the "Staff") in its comment letter dated July 26, 2005. We have transcribed the Staff's comments below, and each of the Staff's comments is followed by the Company's responses. FORM 10-KSB FOR FISCAL YEAR ENDED DECEMBER 31, 2004 MD&A, Liquidity and Capital Resources, page 12 ---------------------------------------------- COMMENT 1: REVISE FUTURE ANNUAL AND QUARTERLY FILINGS TO DISCLOSE AND DISCUSS CHANGES IN CASH FLOWS DURING EACH PERIOD, INCLUDING THE REASONS WHY ACCOUNTS RECEIVABLE APPEAR TO BE INCREASING AT A FASTER RATE THAN REVENUES. Response: The Company has reviewed this comment and will provide appropriate disclosure in future annual and quarterly filings. Controls and Procedures, page 14 -------------------------------- COMMENT 2: WE NOTE YOUR STATEMENT THAT YOUR CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER CONCLUDED THAT THE "DISCLOSURE CONTROLS AND PROCEDURES ARE ADEQUATE TO ENSURE THAT MATERIAL INFORMATION RELATING TO THE COMPANY IS MADE KNOWN TO MANAGEMENT BY OTHERS WITHIN THE COMPANY." PLEASE BE ADVISED THAT YOUR OFFICERS ARE REQUIRED TO CONCLUDE IF YOUR DISCLOSURE CONTROLS AND PROCEDURES ARE EFFECTIVE. PLEASE CONFIRM TO US THAT YOUR OFFICER'S HAVE CONCLUDED THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES ARE EFFECTIVE AND REVISE FUTURE ANNUAL AND QUARTERLY FILINGS TO CLARIFY THEIR CONCLUSIONS. Securities and Exchange Commission September 30, 2005 Page 2 Response: The Company has disclosed the conclusion of its chief executive officer and interim chief financial officer as to the effectiveness (rather than the adequacy) of the Company's disclosure controls and procedures under Part I, Item 3 of the Company's quarterly report on Form 10-QSB/A for the period ended June 30, 2005. The Company's future annual and quarterly filings will likewise comply with this comment. COMMENT 3: ALSO, PLEASE BE ADVISED THAT IF YOU DEFINE DISCLOSURE CONTROLS AND PROCEDURES, YOU SHOULD INCLUDE A FULL DEFINITION. IN THIS REGARD, PLEASE CONFIRM TO US, AND REVISE YOUR DISCLOSURE IN FUTURE ANNUAL AND QUARTERLY FILINGS, TO CLARIFY, IF TRUE, THAT YOUR OFFICERS CONCLUDED THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES ARE EFFECTIVE TO ENSURE THAT INFORMATION REQUIRED TO BE DISCLOSED BY YOU IN THE REPORTS THAT YOU FILE OR SUBMIT UNDER THE EXCHANGE ACT IS RECORDED, PROCESSED, SUMMARIZED AND REPORTED, WITHIN THE TIME PERIODS SPECIFIED IN THE COMMISSION'S RULES AND FORMS AND TO ENSURE THAT INFORMATION REQUIRED TO BE DISCLOSED BY YOU IN THE REPORTS YOU FILE OR SUBMIT UNDER THE EXCHANGE ACT IS ACCUMULATED AND COMMUNICATED TO YOUR MANAGEMENT, INCLUDING YOUR PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER, OR PERSONS PERFORMING SIMILAR FUNCTIONS, AS APPROPRIATE TO ALLOW TIMELY DECISIONS REGARDING REQUIRED DISCLOSURE. ALTERNATIVELY, YOUR OFFICERS MAY CONCLUDE THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES ARE EFFECTIVE, WITHOUT DEFINING THEM. Response: Disclosure responding to this comment has been added under Part I, Item 3 of the Company's quarterly report on Form 10-QSB/A for the period ended June 30, 2005. The Company's future annual and quarterly filings will likewise comply with this comment. Note 1 -- Summary of significant accounting policies, page F-6 -------------------------------------------------------------- COMMENT 4: WE NOTE YOUR ACCOUNTING POLICIES ARE "GENERALLY" FOLLOWED FOR VALUING INVENTORIES, ESTIMATING USEFUL LIVES OF DEPRECIABLE PROPERTIES, AND RECOGNIZING REVENUES. IF THERE ARE EXCEPTIONS TO YOUR ACCOUNTING POLICIES, TELL US WHAT THEY ARE AND REVISE FUTURE ANNUAL AND QUARTERLY FILINGS TO DISCLOSE THEM, OTHERWISE DELETE THE TERMS GENERALLY AND PRINCIPALLY FROM YOUR POLICIES. Securities and Exchange Commission September 30, 2005 Page 3 Response: The Company's inventories are stated at the lower of standard cost or net realizable value. Revenue is recognized when the risks and rewards of ownership and title to the product are transferred to the customer as units are delivered or obligations are satisfied. The Company will delete the terms generally and principally when discussing its significant accounting policies with respect to inventory valuation and revenue recognition in future annual and quarterly filings unless the Company has exceptions to the policy stated in the preceding sentences in which event the Company will disclose the exceptions. The Company will also delete the term "generally" when discussing its significant accounting policies with respect to the estimated useful lives of depreciable properties in future annual and quarterly filings. COMMENT 5: PROVIDE US ADDITIONAL INFORMATION REGARDING WHEN AND HOW YOU RECOGNIZE REVENUE AS TERMS AND CONDITIONS OF PURCHASE ORDERS ARE MET. TELL US THE GENERAL NATURE OF THESE TERMS AND TELL US THE CIRCUMSTANCES WHEN THESE TERMS ARE INCLUDED IN PURCHASE ORDERS. IN ADDITION, BASED ON YOUR DISCLOSURES IN BUSINESS REGARDING YOU PRODUCING UNIQUE PRODUCTS BASED ON SPECIFICATIONS PROVIDED BY CUSTOMERS AND OPERATING UNDER LONG-TERM CONTRACTS, TELL US WHEN AND HOW YOU RECOGNIZE REVENUE IN EACH SUCH CIRCUMSTANCE. Response: Revenue is recognized when the risks and rewards of ownership and title to the product are transferred to the customer as units are delivered or obligations are satisfied. Currently, under one long-term contract, revenue is recognized using the percentage of completion, cost-to-cost method of accounting which accounts for an immaterial percentage of total revenues. Included in other current assets are unbilled receivables related to revenue recognized under the percentage of completion method. FORM 10-QSB FOR FISCAL QUARTER ENDED MARCH 31, 2005 Note 7 -- Business segments --------------------------- COMMENT 6: REVISE FUTURE QUARTERLY FILINGS TO PROVIDE COMPARATIVE SEGMENT DISCLOSURES (I.E. FOR THE PERIOD ENDED MARCH 31, 2004). Response: Disclosure responding to this comment has been included in Note 7, Business segments, to the consolidated financial statements in the Company's quarterly report on Form 10-QSB/A for the period ended June 30, 2005. Additionally, disclosure responding to this comment will be included in future annual and quarterly filings. Securities and Exchange Commission September 30, 2005 Page 4 As requested in your letter, the Company acknowledges that: * The Company is responsible for the adequacy and accuracy of the disclosure in the filings; * Staff comments or changes to disclosures in response to Staff comments do not foreclose the Commission from taking any action with respect to the filings; and * The Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. If you have any questions about the matters in this letter, please call the undersigned at (716) 843-3881. Very truly yours, JAECKLE FLEISCHMANN & MUGEL, LLP By: /s/ Michael C. Donlon ----------------------------- Michael C. Donlon