During the three month periods ended March 31, 2009 and 2008, approximately 43% and 49%, respectively, of the Company's revenues were derived from contracts with agencies of the U.S. Government or their prime contractors and their subcontractors. 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, the effects of terrorism and the threat of terrorism, market demand and acceptance both for the Company's products and its customers' products which incorporate Company-made components.

In December of 2008, the Aerospace Industries Association (AIA) stated that the aerospace industry is showing resiliency in trying economic times, but has not been immune to

the effects of the ongoing global financial crisis. These extremely volatile economic times create circumstances that may have effects on the Aerospace Industry. The Company's Advanced Technology Group revenue decreased approximately 3% for the three months ended March 31, 2009 compared to the same period in 2008 due to stretch-outs of customer orders across various product lines and, to a lesser extent, cancellations. The ATG continues its aggressive business development efforts in its primary markets and is broadening its focus to include new - domestic and foreign - markets that are consistent with its core competencies. There are substantial uncertainties in the current Global Economy that are compounded with certain Airliner delivery stretch-outs being implemented which in turn may adversely affect the Company's sales revenues in 2009 and beyond. Although the ATG backlog continues to be significant, actual scheduled shipments may be delayed as a function of the Company's customers' delivery determinations that may be based on changes in the Global Economy and other factors.

The Company's Consumer Products Group (CPG) develops new commercial products and products for Government and Military applications. Included in the significant uncertainties in the near and long term are the effects of the U. S. and World's Stimulus Plans and the difficulty to accurately project the net effect of the change in the U.S. Administration on the government's procurement programs. Approximately 50% of the CPG's revenues are derived from contracts with agencies of the U.S. Government or their prime contractors. Procurement and time of shipments under such contracts significantly impact the operating results for the CPG from period to period. During the three months ended March 31, 2009 compared to the same period in 2008 the CPG revenue decreased by approximately 30% due to the completion of a significant contract in the first quarter of 2008. The drop in revenues coupled with the reduction in margins under existing contracts contributed significantly to the reduction in gross profit of approximately $1 million.

See also Note 10, Business Segments, of the accompanying consolidated financial statements for information concerning business segment operating results.

                      SERVOTRONICS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                               Results of Operations


    The following table compares the Company's statements of operations data for
the three months ended March 31, 2009 and 2008 ($000's omitted).

                                          Three Months Ended March 31,
                                                                                                   2009 vs. 2008
                                     2009                             2008                   Dollar        % Increase
                           Dollars        % of Sales        Dollars        % of Sales        Change        (Decrease)
     Revenue:
       Advanced
     Technology           $    4,513             59.9 %    $    4,647             51.7 %    $    (134 )            (2.9 %)
       Consumer
     Products                  3,025             40.1 %         4,338             48.3 %       (1,313 )           (30.3 %)
                               7,538            100.0 %         8,985            100.0 %       (1,447 )           (16.1 %)
     Cost of sale,
     exclusive of
     depreciation
       and amortization        6,139             81.4 %         6,468             72.0 %         (329 )            (5.1 %)
     Gross profit              1,399             18.6 %         2,517             28.0 %       (1,118 )           (44.4 %)
     Selling, general
     and administration        1,079             14.3 %         1,023             11.4 %           56               5.5 %
     Depreciation and
     amortization                139              1.8 %           140              1.6 %           (1 )            (0.7 %)
     Total costs and
     expenses                  7,357             97.6 %         7,631             84.9 %         (274 )            (3.6 %)
     Operating income            181              2.4 %         1,354             15.1 %       (1,173 )           (86.6 %)
     Interest expense             24              0.3 %            47              0.5 %          (23 )           (48.9 %)
     Other income, net           (29 )           (0.4 %)          (38 )           (0.4 %)           9             (23.7 %)
     Income tax
     provision                    61              0.8 %           492              5.5 %         (431 )           (87.6 %)
     Net income           $      125              1.7 %    $      853              9.5 %    $    (728 )           (85.3 %)

Sales

The Company's consolidated revenues decreased approximately $1,447,000 or 16.1% for the three month period ended March 31, 2009 when compared to the same three month period in 2008. Such decreases are the result of customer stretch-outs of existing orders and, to a lesser extent, order cancellations at the ATG combined with decreased shipments of military products at the CPG. While the CPG anticipates follow-up Government contracts on existing products as well as orders for new products, there is uncertainty as to the amount and timing of these orders as a result of the current Global Economy, the transitional U.S. Administration and geographic troop focus.

As shown in the above table, gross profit and gross profit as a percentage of net revenues for the three month period ended March 31, 2009 decreased as compared to the same three month period in 2008. The primary reason for the decrease in gross profit was the decrease in net revenue and the mix of products sold at the CPG. The current mix of products sold in the period within the ATG and CPG segments as well as the composition of ATG and CPG sales to the total consolidated sales directly attributed to dollar value and percentage decrease in gross profit.

Selling, general and administrative (SG&A) expenses that include variable costs increased for the three month period ended March 31, 2009 as compared to the same three month period in 2008 by approximately 5%. The increase in SG&A includes increased expenses relative to contract administration/negotiations, product line acquisition, product protection (i.e., trademarks, patents) and other costs associated with the expansion of the ATG and CPG foreign and domestic markets. The trend is for SG&A expenses to increase as a function of

increased regulations, market expansion, company growth and the full implementation of the Sarbanes-Oxley Act.

Interest expense decreased for the three month period ended March 31, 2009 compared to the same period in 2008 due to the decrease in the average outstanding debt and interest rates. Average debt outstanding will continue to decline as the Company repays its scheduled debt obligations and assuming the Company does not incur additional debt. See also Note 5, Long-term debt, of the accompanying consolidated financial statements for information on long-term debt.

Depreciation and amortization expense remained consistent for the three month period ended March 31, 2009 compared to the same period in 2008. Depreciation expense fluctuates due to variable estimated useful lives of depreciable property (as identified in Note 2, Summary of significant accounting policies, of the accompanying consolidated financial statements) as well as the amount and nature of capital expenditures in current and previous periods. It is anticipated that the Company's future capital expenditures will, at a minimum, follow the Company's requirements to support its delivery commitments and to meet the information technology related capital expenditure requirements that are associated with Sarbanes-Oxley and other new regulatory requirements.

Components of other income include interest income on cash and cash equivalents, and other amounts not directly related to the sale of the Company's products. The decrease in other income for the three month period ended March 31, 2009 when compared to the same three month period in 2008 is due to the decline in market driven interest rates on cash and cash equivalents.

The Company's effective tax rate was 33.1% in the first quarter of 2009 as compared to 36.6% for the three month period ended March 31, 2008. The effective tax rate in both periods reflects state income taxes, permanent non-deductible expenditures and the tax benefit for manufacturing deductions allowable under the American Jobs Creation Act of 2004 as well as reductions in New York State's statutory tax rate and income apportionments formula. See also Note 6, Income taxes, of the consolidated financial statements for information concerning income tax.

Net income for the three month period ended March 31, 2009 decreased $728,000 when it is compared to the net income for the same period ended in 2008. The decrease in net income is the result of decreased sales at the ATG and CPG as well the less favorable margins on the mix of products sold at the CPG during the three month period ended March 31, 2009.

The Company's primary liquidity and capital requirements relate to working capital needs; primarily inventory, accounts receivable, capital expenditures for property, plant and equipment and principal and interest payments on debt.

At March 31, 2009, the Company had working capital of approximately $16,300,000 of which approximately $3,986,000 was comprised of cash and cash equivalents. The Company

used approximately $535,000 in cash from operations during the three months ended March 31, 2009 as compared to generating $423,000 during the three months ended March 31, 2008. The primary uses of cash for the Company's operating activities for the three months ended March 31, 2009 were for increases in inventory and payments to vendors aggregating $1,605,000 off set by reductions in accounts receivable of approximately $484,000.

The Company's primary use of cash in its financing and investing activities in the first three months of 2009 related to capital expenditures for equipment and principal payments on long-term debt.

At March 31, 2009, there are no material commitments for capital expenditures.

The Company also has a $1,000,000 line of credit on which there is no balance outstanding at March 31, 2009. If needed, this can be used to fund cash flow requirements.