10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-07109

SERVOTRONICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	16-0837866
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification No.)

1110 Maple Street

Elma, New York 14059

(Address of principal executive offices) (zip code)

(716) 655-5990

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common Stock	SVT	NYSE American

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 ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act.

Large accelerated filer ¨Accelerated filer ¨   Non-accelerated filer x   Smaller reporting company x   Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at July 28, 2020
Common Stock, $.20 par value	2,477,099

INDEX

			Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	a)	Condensed Consolidated Balance Sheets, June 30, 2020 and December 31, 2019 (Audited)	3
	b)	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019	4
	c)	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	5
	d)	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Controls and Procedures		24
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		25
Item 1A.	Risk Factors		25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 3.	Defaults Upon Senior Securities		25
Item 4.	Mine Safety Disclosures		25
Item 5.	Other Information		25
Item 6.	Exhibits		25
Forward-Looking Statements			26
Signatures			27

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SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

($000’s omitted except share and per share data)

	June 30,			December 31,
	2020			2019
	(Unaudited)			(Audited)
Current assets:
Cash	$	7,140		$	2,029
Accounts receivable, net		10,259			13,183
Inventories, net		25,095			20,151
Prepaid income taxes		-			416
Other current assets		642			522
Total current assets		43,136			36,301
Property, plant and equipment, net		12,599			12,717
Deferred income taxes		107			107
Other non-current assets		338			345
Total Assets	$	56,180		$	49,470
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt	$	548		$	548
Current portion of equipment financing lease obligations		301			301
Dividend payable		16			17
Accounts payable		3,743			4,458
Accrued employee compensation and benefits costs		2,286			2,283
Accrued income taxes		167			-
Other accrued liabilities		828			1,035
Total current liabilities		7,889			8,642
Long-term debt		9,500			5,170
Post retirement obligation		2,324			2,126
Shareholders' equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,614,506 shares; outstanding 2,389,673 (2,399,576 - 2019) shares		523			523
Capital in excess of par value		14,430			14,358
Retained earnings		23,347			20,484
Accumulated other comprehensive income		98			98
Employee stock ownership trust commitment		(460	)		(460	)
Treasury stock, at cost 137,407 (127,504 - 2019) shares		(1,471	)		(1,471	)
Total shareholders' equity		36,467			33,532
Total Liabilities and Shareholders' Equity	$	56,180		$	49,470

See notes to condensed consolidated financial statements

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SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME 

($000’s omitted except per share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenue	$	13,504	$	14,067	$	28,952	$	26,070
Costs of goods sold, inclusive of depreciation and amortization		10,484		10,798		21,220		20,728
Gross margin		3,020		3,269		7,732		5,342
Operating Expenses:
Selling, general and administrative		1,748		2,375		4,016		4,302
Interest expense		50		30		92		57
Total operating expenses		1,798		2,405		4,108		4,359
Income before income tax provision		1,222		864		3,624		983
Income tax provision		257		150		761		171
Net income	$	965	$	714	$	2,863	$	812
Income per share:
Basic
Net Income per share	$	0.41	$	0.31	$	1.21	$	0.35
Diluted
Net income per share	$	0.40	$	0.30	$	1.20	$	0.34

See notes to condensed consolidated financial statements

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SERVOTRONICS, INC. AND SUBSIDIARIES

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 ($000’s omitted)

 (Unaudited)

		Six Months Ended
		June 30,
		2020			2019
Cash flows related to operating activities:
Net Income	$	2,863		$	812
Adjustments to reconcile net income to net cash generated by operating activities:
Depreciation and amortization		718			563
Stock based compensation		172			153
Decrease in allowance doubtful accounts		(181	)		(26	)
Increase/(Decrease) in inventory reserve		132			(4	)
Decrease in warranty reserve		(133	)		(8	)
Change in assets and liabilities:
Accounts receivable		3,106			(357	)
Inventories		(5,076	)		(1,780	)
Prepaid income taxes		583			104
Other current assets		(120	)		(41	)
Other non-current assets		-			6
Accounts payable		(715	)		1,195
Accrued employee compensation and benefit costs		3			(20	)
Other accrued liabilities		124			41
Net cash generated by operating activities		1,476			638
Cash flows related to investing activities:
Capital expenditures - property, plant and equipment		(593	)		(1,140	)
Note Receivable		-			(125	)
Net cash used by investing activities		(593	)		(1,265	)
Cash flows related to financing activities:
Principal payments on long-term debt		(274	)		(274	)
Principal payments on equipment financing lease obligations		(148	)		(87	)
Proceeds from equipment note and equipment financing lease obligations		-			388
Proceeds from line of credit		750			-
Proceeds from paycheck protection program		4,000			-
Purchase of treasury shares		(100	)		(149	)
Net cash generated/(used) by financing activities		4,228			(122	)
Net increase/(decrease) in cash		5,111			(749	)
Cash at beginning of period		2,029			2,598
Cash at end of period	$	7,140		$	1,849
Supplemental Cash Flow Information:
Equipment acquired through financing paid directly to vendor	$	-		$	213

See notes to condensed consolidated financial statements

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States 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 and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The consolidated financial statements should be read in conjunction with the 2019 annual report and the notes thereto.

2. Business Description and Summary of Significant Accounting Policies

Business Description

Servotronics, Inc. and its subsidiaries design, manufacture and market advanced technology products consisting primarily of control components, and consumer products consisting of knives and various types of cutlery and other edged products.

Principles of Consolidation

The consolidated financial statements include the accounts of Servotronics, Inc. and its wholly-owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated upon consolidation.

Cash

The Company considers cash to include all currency and coins owned by the Company as well as all deposits in the bank including checking accounts and savings accounts.

Accounts Receivable

The Company grants credit to substantially all of its customers and carries its accounts receivable at original invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on history of past write-offs, collections, and current credit conditions. The allowance for doubtful accounts amounted to approximately $156,000 at June 30, 2020 and $337,000 at December 31, 2019. The Company does not accrue interest on past due receivables.

Revenue Recognition

Revenues are recognized at the time of shipment of goods, transfer of title and customer acceptance, as required. Our revenue transactions generally consist of a single performance obligation to transfer contracted goods and are not accounted for under industry-specific guidance. 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. Service sales, principally representing repair, are recognized at the time of shipment of goods.

See notes to condensed consolidated financial statements

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SERVOTRONICS, INC. AND SUBSIDIARIES

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The costs incurred for nonrecurring engineering, development and repair activities of our products under agreements with commercial customers are expensed as incurred. Subsequently, the revenue is recognized as products are delivered to the customers with the approval by the customers.

Revenue is recognized at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods and services to a customer. The Company determines revenue recognition using the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when the company satisfies a performance obligation.

Revenue excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (e.g., sales and use taxes). Revenue includes payments for shipping activities that are reimbursed by the customer to the Company.

Performance obligations are satisfied as of a point in time. Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract. As a significant portion of the Company’s revenue are recognized at the time of shipment, transfer of title and customer acceptance, there is no significant judgment applied to determine the timing of the satisfaction of performance obligations or transaction price.

The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment. The Company generally receives payment for these contracts within the payment terms negotiated and agreed upon by each customer contract.

Warranty and repair obligations are assessed on all returns. Revenue is not recorded on any warranty returns. The Company warrants its products against design, materials and workmanship based on an average of twenty-seven months. The Company determines warranty reserves needed based on actual average costs of warranty units shipped and current facts and circumstances. As of June 30, 2020 and December 31, 2019 under the guidance of ASC460 the Company has recorded a warranty reserve of approximately $287,000 and $420,000, respectively. This amount is reflected in other accrued expenses in the accompanying balance sheet. Revenue is recognized on repair returns, covered under a customer contract, at the contractual price upon shipment to the customer.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost includes all costs incurred to bring each product to its present location and condition. Market provisions in respect of lower of cost or market adjustments and inventory expected to be used in greater than two years are applied to the gross value of the inventory through a reserve of approximately $1,569,000 and $1,437,000 at June 30, 2020 and December 31, 2019, respectively. Pre-production and start-up costs are expensed as incurred.

The purchase of suppliers’ minimum economic quantities of material such as steel, etc. may result in a purchase of quantities exceeding one year of customer requirements. Also, in order to maintain a reasonable and/or agreed to lead time, certain larger quantities of other product support items may have to be purchased and may result in over one year’s supply. These amounts are not included in the inventory reserve discussed above.

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SERVOTRONICS, INC. AND SUBSIDIARIES

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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 income tax purposes. Depreciation expense includes the amortization of right-of-use (“ROU”) assets accounted for as finance leases. The estimated useful lives of depreciable properties are generally as follows:

Buildings and improvements	5-40 years
Machinery and equipment	5-20 years
Tooling	3-5 years

Income Taxes

	For the Six Months Ended
	June 30,
	2020			2019			% Change
	($000's omitted)
Income tax expense	$	761		$	171			345	%
Effective tax rate		21.0	%		17.4	%		3.6	%

The higher effective tax rate during the six months ended June 30, 2020 was primarily due to a decrease in permanent deductible expenses.

In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law on March 27, 2020. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. The Company is currently evaluating the impact of these measures on its consolidated financial statements. If these measures are determined to be applicable to the Company, they may result in cash refunds and an income tax benefit recorded in the consolidated statement of income.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities, as well as operating loss and credit carryforwards. The Company and its subsidiaries file a consolidated federal income tax return, combined New York and Texas state income tax returns and various separate state income tax returns.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at June 30, 2020 or December 31, 2019, and did not recognize any interest and/or penalties in its consolidated statements of income during the three months ended June 30, 2020 and 2019. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of June 30, 2020 and December 31, 2019. On July 16, 2020, the Company was notified that the 2017 federal income tax return was randomly selected for examination. The 2016 through 2018 federal and state tax returns remain subject to examination.

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SERVOTRONICS, INC. AND SUBSIDIARIES

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Cash Flow Information

Income taxes paid during the six months ended June 30, 2020 and 2019 amounted to approximately $42,000 and $0, respectively. Interest paid during the six months ended June 30, 2020 and 2019 amounted to approximately $84,000 and $57,000, respectively.

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 annually or 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. Due to the losses incurred by our Consumer Products Group (“CPG”), we performed a test for recoverability of the long-lived assets by comparing its carrying value to the future undiscounted cash flows that we expect will be generated by the asset group. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. The Company has determined that no impairment of long-lived assets existed at June 30, 2020 and December 31, 2019.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain balances, as previously reported, were reclassified to conform to classifications adopted in the current period.

Research and Development Costs

Research and development costs are expensed as incurred.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentration of credit risks principally consist of cash accounts in financial institutions. Although the accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institutions.

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SERVOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, 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

	June 30,			December 31,
	2020			2019
	($000's omitted)
Raw material and common parts	$	17,469		$	14,707
Work-in-process		5,684			4,158
Finished goods		3,511			2,723
		26,664			21,588
Less inventory reserve		(1,569	)		(1,437	)
Total inventories	$	25,095		$	20,151

4. Property, Plant and Equipment

	June 30,			December 31,
	2020			2019
	($000's omitted)
Land	$	7		$	7
Buildings		11,158			11,017
Machinery, equipment and tooling		21,036			20,695
Construction in progress		442			331
		32,643			32,050
Less accumulated depreciation and amortization		(20,044	)		(19,333	)
Total property, plant and equipment	$	12,599		$	12,717

Depreciation and amortization expense amounted to approximately $363,000 and $289,000 for the three months ended June 30, 2020 and 2019, respectively. Amortization expense primarily related to ROU assets amounted to approximately $17,000 and $21,000 for the three months ended June 30, 2020 and 2019, respectively. Depreciation and amortization expense amounted to approximately $718,000 and $563,000 for the six months ended June 30, 2020 and 2019, respectively. Amortization expense, primarily related to ROU assets, amounted to approximately $35,000 and $41,000 for the six months ended June 30, 2020 and 2019, respectively. The Company 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.

As of June 30, 2020, there is approximately $442,000 ($331,000 – December 31, 2019) of construction in progress (CIP) included in property, plant and equipment all of which is related to capital projects. There is approximately $298,000 in CIP for machinery & equipment and self-constructed assets ($280,000 – December 2019), $27,000 for computer equipment ($32,000 – December 2019) and $117,000 for building improvements ($19,000 – December 2019) primarily related to the Advanced Technology Group (“ATG”).

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Long-Term Debt

	June 30,			December 31,
	2020			2019
	($000's omitted)
Paycheck protection progam payable to financial institutions: Interest rate of 1% per annum.  Unforgiven portion is payable monthly until April 20, 2022 (A)	$	4,000		$	-
Line of credit payable to a financial institution; Interest rate  option of bank prime or Libor plus 1.65% (1.579% as of  June 30, 2020) (B) (C )		3,750			3,000
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (1.573% as of June 30, 2020), monthly prinicipal payments of $21,833 through 2021 with a balloon payment of  $786,000 due December 1, 2021 (C)		1,179			1,310
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (2.981130% as of June 30, 2020), monthly prinicipal payments of $23,810 through December 1, 2021 (C)		430			571
Equipment note obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at  time of funding. (Interest rate/factor 1.8259% - 1.835015%  as of June 30, 2020) (D)		602			670
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) (E)		388			468
		10,349			6,019
Less current portion		(849	)		(849	)
	$	9,500		$	5,170

A.) On April 21, 2020, the Company executed a promissory note (the “Note”) in the amount of $4,000,000 as part of the Paycheck Protection Program (the “PPP Loan”) administered by the Small Business Administration (the “SBA”) and authorized under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act”). The PPP Loan is being made through the Bank of America, NA (the “Lender”). The term of the PPP Loan is two years with an annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan will be deferred for the first six months of the loan term. Payments on any unforgiven amounts will begin on the date on which loan forgiveness is determined or 10 months after the end of the borrower’s covered period if forgiveness is not requested. Commencing one month after the expiration of the deferral period, the Company is required to pay the Lender the principal amount outstanding on the PPP Loan in equal monthly payments of principal and interest.

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

B.) As of March 20, 2020, the Company increased its line of credit from $4,000,000 to $6,000,000.  As of July 31, 2020, the Company extended the line of credit to expire December 31, 2022. As of July 31, 2020, the interest rate is a rate per year equal to the bank’s prime rate or Libor plus 1.65%.  In addition, the Company is required to pay a commitment fee of 0.25% per year on the unused portion of the line of credit.  There was $3,750,000 balance outstanding at June 30, 2020 and $3,000,000 balance at December 31, 2019.

C.) The term loans and line of credit are secured by all personal property of the Company with the exception of certain equipment that was purchased from proceeds of government grants. Certain lenders require the Company to comply with debt covenants as described in the specific loan documents, including a debt service ratio. At June 30, 2020 and December 31, 2019 the Company was in compliance with these covenants.

D.) The Company had an equipment loan facility in the amount of $2,500,000 available until November 30, 2019. This line was non-revolving and non-renewable. The Company used approximately $721,000 of the available funds for the purchase of machinery and equipment. The loan term for the equipment covered by the agreement is 60 months. Monthly payments are fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There was approximately $602,000 outstanding at June 30, 2020 and $670,000 at December 31, 2019.

E.) The Company established a lease line of credit for equipment financing in the amount of $1,000,000 available until June 28, 2018. This line was non-revolving and non-renewable. The lease term for equipment covered by the lease line of credit is 60 months. Monthly payments are fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There was approximately $388,000 outstanding at June 30, 2020 and $468,000 at December 31, 2019.

F.) The Company has an equipment loan facility in the amount of $1,000,000 available until July 9, 2021. This line was non-revolving and non-renewable. The loan term for the equipment covered by the agreement is 60 months. Monthly payments are fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There is nothing outstanding as of June 30, 2020 and at December 31, 2019.

Remaining principal maturities of long-term debt are as follows: 2020 - $430,000, 2021 - $4,635,000, 2022 - $5,037,000, 2023 - $154,000 and 2024 - $93,000. Remaining principal payments and interest payments for the capital note and capital equipment financing lease obligations for each of the next five years:

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

			June 30,				December 31,
	Year		2020				2019
			($000's omitted)
		2020	$	166		$	331
		2021		331			331
		2022		316			316
		2023		169			169
		2024		97			97
Total principal and interest payments				1,079			1,244
Less amount representing interest				(89	)		(106	)
Present value of net minimum lease payments				990			1,138
Less current portion				(301	)		(301	)
Long-term principle payments			$	689		$	837

6.            Shareholders’ Equity

	Six-month Period Ended June 30, 2020
			Accumulated
			Other				Capital in								Total
	Retained		Comprehensive		Common		excess of					Treasury			shareholders'
	Earnings		Income		Stock		par value		ESOT			stock			equity
January 1, 2020	$	20,484	$	98	$	523	$	14,358	$	(460	)	$	(1,471	)	$	33,532
Purchase of treasury shares		-		-		-		-		-			(100	)		(100	)
Stock based compensation		-		-		-		33		-			52			85
Net Income		1,898		-		-		-		-			-			1,898
March 31, 2020	$	22,382	$	98	$	523	$	14,391	$	(460	)	$	(1,519	)	$	35,415
Stock based compensation		-		-		-		39		-			48			87
Net Income		965		-		-		-		-			-			965
June 30, 2020	$	23,347	$	98	$	523	$	14,430	$	(460	)	$	(1,471	)	$	36,467

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Six-month Period Ended June 30, 2019
				Accumulated
				Other				Capital in								Total
	Retained			Comprehensive		Common		excess of					Treasury			shareholders'
	Earnings			Income		Stock		par value		ESOT			stock			equity
January 1, 2019	$	18,788		$	35	$	523	$	14,250	$	(561	)	$	(1,522	)	$	31,513
Purchase of treasury shares		-			-		-		-		-			(128	)		(128	)
Stock based compensation		-			-		-		14		-			44			58
Net Income		98			-		-		-		-			-			98
March 31, 2019	$	18,886		$	35	$	523	$	14,264	$	(561	)	$	(1,606	)	$	31,541
Dividends declared ($0.16 per share)		(413	)		-		-		-		-			-			(413	)
Purchase of treasury shares		-			-		-		-		-			(21	)		(21	)
Stock based compensation		-			-		-		34		-			61			95
Net Income		714			-		-		-		-			-			714
June 30, 2019	$	19,187		$	35	$	523	$	14,298	$	(561	)	$	(1,566	)	$	31,916

The Company’s Board of Directors authorized the purchase of up to 450,000 shares of its common stock in the open market or in privately negotiated transactions. As of June 30, 2020, the Company has purchased 360,615 shares and there remains 89,385 shares available to purchase under this program. There were 360 and 4,502 shares purchased by the Company during the six month period ended June 30, 2020 and 2019, respectively.

The Company’s 2012 Long-Term Incentive Plan provides for the granting of stock awards, including restricted stock, stock options and stock appreciation rights, to employees and non-employees, including directors of the Company. Compensation expense is amortized over the related service period, which is normally three years. Shares of unvested restricted stock are generally forfeited if a recipient leaves the Company before the vesting date. Shares that are forfeited become available for future awards.

The following is a summary of restricted stock activity for the six months ended June 30, 2020. Of the shares that vested, the Company withheld 9,543 shares to satisfy the tax obligations for those participants who elected this option as permitted under the applicable equity plan.

	Shares
Restricted Share Activity:
Unvested at December 31, 2019		54,416
Granted		-
Forfeited		-
Vested		29,166
Unvested at June 30, 2020		25,250

- 14 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share

Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding, are considered forfeitable until the restrictions lapse and will not be included in the basic EPS calculation until the shares are vested. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common 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 the earnings per share that 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. The dilutive effect of unvested restrictive stock is determined using the treasury stock method.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	($000's omitted except per share data)
Net Income	$	965	$	714	$	2,863	$	812
Weighted average common shares outstanding
(basic)		2,364		2,324		2,364		2,322
Unvested restricted stock		25		60		25		60
Weighted average common shares outstanding
(diluted)		2,389		2,384		2,389		2,382
Basic
Net income per share	$	0.41	$	0.31	$	1.21	$	0.35
Diluted
Net income per share	$	0.40	$	0.30	$	1.20	$	0.34

7. Commitments and Contingencies

Post retirement obligation. As previously disclosed in filings with the Securities and Exchange Commission (“SEC”), the Company, under an employment agreement, is expected to pay post-employment health related benefits to a former Executive Officer of the Company (the “Former Employee”), of which approximately $1,663,000 and $1,543,000 has been accrued as of June 30, 2020 and December 31, 2019, and is reflected as Post Retirement Obligation in the accompanying consolidated balance sheet.

Employment Agreements. The Company provides certain post-employment health and life insurance benefits for its Chief Executive Officer and President Kenneth Trbovich. Upon retirement and after attaining at least the age of 65, the Company will pay for the retired Executive’s and dependent’s health benefits and will continue the Company-provided life insurance offered at the time of retirement. The retiree’s health insurance benefits ceases upon the death of the retired executive. Approximately $661,000 and $583,000 has been accrued as of June 30, 2020 and December 31, 2019, respectively, and is reflected as Post Retirement Obligation in the accompanying consolidated balance sheet.

- 15 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Litigation

Litigation. The Company has pending litigation relative to leases of certain equipment and real property with a former related party. Aero, Inc. is suing Servotronics, Inc. and its wholly owned subsidiary and has alleged damages in the amount of $3,000,000. The Company has filed a response to the Aero, Inc. lawsuit and has also filed a counter-claim in the amount of $3,191,000. The Company considers the risk of loss remote, and is unable to reasonably or accurately estimate the likelihood and amount of any liability or benefit that may be realized as a result of this litigation. Accordingly, no gain or loss has been recognized in the accompanying consolidated financials statements related to this litigation.

There are no other legal proceedings currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to have a material adverse effect on the business or earnings of the Company.

9. Related Party Transactions

The Company paid legal fees and disbursements of approximately $132,000 and $48,000 in the six month period ended June 30, 2020 and 2019, respectively, for services provided by a law firm that is owned by a member of the Company’s Board of Directors. Legal fees paid for the three month period ended June 30, 2020 and 2019 amounted to approximately $37,000 and $29,000, respectively. Additionally, the Company had accrued unbilled legal fees at June 30, 2020 and 2019 of approximately $25,000 and $22,000, respectively, with this firm.

10. Business Segments

The Company operates in two business segments, ATG and 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 primarily involve the design, manufacture, and marketing of servo-control components (i.e., torque motors, 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 portion of finished products are for foreign end use.

As of June 30, 2020, the Company had identifiable assets of approximately $56,180,000 ($49,470,000 – December 31, 2019) of which approximately $46,208,000 ($39,980,000 – December 31, 2019) was for ATG and approximately $9,972,000 ($9,490,000 – December 31, 2019) was for CPG.

- 16 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Information regarding the Company’s operations in these segments is summarized as follows:

	($000's omitted except per share data)
	ATG						CPG						Consolidated
	Six Months Ended						Six Months Ended						Six Months Ended
	June 30,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
Revenues from unaffiliated customers	$	25,044		$	22,746		$	3,908		$	3,324		$	28,952		$	26,070
Cost of goods sold, inclusive of depreciation		(17,860	)		(17,022	)		(3,361	)		(3,706	)		(21,221	)		(20,728	)
Gross margin		7,184			5,724			547			(382	)		7,731			5,342
Gross margin %		28.7	%		25.2	%		14.0	%		-11.5	%		26.7	%		20.5	%
Selling, general and administrative		(3,145	)		(3,019	)		(871	)		(1,283	)		(4,016	)		(4,302	)
Interest		(84	)		(41	)		(7	)		(16	)		(91	)		(57	)
Total costs and expenses		(21,089	)		(20,082	)		(4,239	)		(5,005	)		(25,328	)		(25,087	)
Income/(loss) before income tax provision		3,955			2,664			(331	)		(1,681	)		3,624			983
Income tax provision (benefits)		830			463			(69	)		(292	)		761			171
Net income/(loss)	$	3,125		$	2,201		$	(262	)	$	(1,389	)	$	2,863		$	812
Capital expenditures	$	541		$	1,161		$	52		$	192		$	593		$	1,353

	($000's omitted except per share data)
	ATG						CPG						Consolidated
	Three Months Ended						Three Months Ended						Three Months Ended
	June 30,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
Revenues from unaffiliated customers	$	11,230		$	12,151		$	2,274		$	1,916		$	13,504		$	14,067
Cost of goods sold, inclusive of depreciation		(8,494	)		(8,555	)		(1,991	)		(2,243	)		(10,485	)		(10,798	)
Gross margin		2,736			3,596			283			(327	)		3,019			3,269
Gross margin %		24.4	%		29.6	%		12.4	%		-17.1	%		22.4	%		23.2	%
Selling, general and administrative		(1,402	)		(1,739	)		(346	)		(636	)		(1,748	)		(2,375	)
Interest		(46	)		(22	)		(3	)		(8	)		(49	)		(30	)
Total costs and expenses		(9,942	)		(10,316	)		(2,340	)		(2,887	)		(12,282	)		(13,203	)
Income/(loss) before income tax provision		1,288			1,835			(66	)		(971	)		1,222			864
Income tax provision (benefits)		270			318			(13	)		(168	)		257			150
Net income/(loss)	$	1,018		$	1,517		$	(53	)	$	(803	)	$	965		$	714
Capital expenditures	$	128		$	562		$	52		$	149		$	180		$	711

- 17 -

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

During the six months ended June 30, 2020 and 2019, approximately 87% and 87%, respectively, of the Company’s consolidated revenues were derived from the ATG sale of product to a small base of customers. During the six months ended June 30, 2020 and 2019, approximately 13% and 13%, respectively, of the Company’s consolidated revenues were derived from the CPG sale of product to a large base of retail customers. There was an increase in consolidated revenue in the six months ended June 30, 2020 from 2019 of approximately $2,882,000. This is due to an increase in shipments and price/mix at both the ATG and CPG of approximately $2,298,000 and $584,000, respectively.

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 and threats of terrorism, market demand and acceptance both for the Company’s products and its customers’ products which incorporate Company made components.

The ATG engages its business development efforts in its primary markets and is broadening its activities to include new domestic and foreign markets that are consistent with its core competencies. We believe our business remains particularly well positioned in the strong commercial aircraft market driven by the replacement of older aircraft with more fuel efficient alternatives and the increasing demand for air travel in emerging markets. Although the ATG backlog continues to be strong, actual scheduled shipments may be delayed/changed as a function of the Company’s customers’ final delivery determinations based on changes in the global economy and other factors.

The ATG and CPG continue to respond to U.S. government procurement requests for quotes. New product development activities are ongoing along with the acquisition and development of new product lines.

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

Business Environment

As an essential business, we have continued to conduct our operations to the fullest extent possible, while responding to the novel coronavirus (COVID-19) outbreak with actions that include implementing measures to protect the health and safety of our employees, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present on the manufacturing floor to perform their work and extensively and frequently disinfecting our workspaces.

We have experienced, and expect to continue to experience, reductions in customer demand and we expect that the social distancing measures and any preventive or protective actions taken by governmental authorities will more meaningfully impact our operations, supply chain, and customers in the third quarter and possibly beyond. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depends upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effect. Any resulting financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, results of operations, financial condition, and cash flows. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression.

We took actions in the first quarter to strengthen our liquidity and financial condition. On March 20, 2020 we increased our line of credit to $6,000,000 as part of our pre-COVID-19 planning. Additionally, in the beginning of the second quarter we applied for and received a $4,000,000 loan as part of the Paycheck Protection Program authorized under the CARES Act. We believe the combination of the PPP loan and our increased capacity under our line of credit, together with internal cost reductions will preserve our financial flexibility during the pandemic.

- 18 -

Results of Operations

The following table compares the Company’s consolidated statements of income data for the six months and three months ended June 30, 2020 and 2019 ($000’s omitted):

	($000's omitted except per share data)
	Six Months Ended June 30,												2020 vs 2019
	2020						2019						Dollar			% Increase
	Dollars			% of Sales			Dollars			% of Sales			Change			(Decrease)
Revenues:
Advanced Technology	$	25,044			86.5	%	$	22,746			87.2	%	$	2,298			10.1	%
Consumer Products		3,908			13.5	%		3,324			12.8	%		584			17.6	%
		28,952			100.0	%		26,070			100.0	%		2,882			11.1	%
Cost of goods sold, inclusive of depreciation and amortization		21,221			73.3	%		20,728			79.5	%		493			2.4	%
Gross margin		7,731			26.7	%		5,342			20.5	%		2,389			44.7	%
Gross margin %		26.7	%					20.5	%
Selling, general and administrative		4,016			13.9	%		4,302			16.5	%		(286	)		(6.6	)%
Interest expense		91			0.3	%		57			0.2	%		34			59.6	%
Total costs and expenses		25,328			87.5	%		25,087			96.2	%		241			1.0	%
Income before income tax provision		3,624			12.5	%		983			3.8	%		2,641			268.7	%
Income tax provision		761			2.6	%		171			0.7	%		590			345.0	%
Net income	$	2,863			9.9	%	$	812			3.1	%	$	2,051			252.6	%

- 19 -

	($000's omitted except per share data)
	Three Months Ended June 30,												2020 vs 2019
	2020						2019						Dollar			% Increase
	Dollars			% of Sales			Dollars			% of Sales			Change			(Decrease)
Revenues:
Advanced Technology	$	11,230			83.2	%	$	12,151			86.4	%	$	(921	)		(7.6	)%
Consumer Products		2,274			16.8	%		1,916			13.6	%		358			18.7	%
		13,504			100.0	%		14,067			100.0	%		(563	)		(4.0	)%
Cost of goods sold, inclusive of depreciation and amortization		10,485			77.6	%		10,798			76.8	%		(313	)		(2.9	)%
Gross margin		3,019			22.4	%		3,269			23.2	%		(250	)		(7.6	)%
Gross margin %		22.4	%					23.2	%
Selling, general and administrative		1,748			12.9	%		2,375			16.9	%		(627	)		(26.4	)%
Interest expense		49			0.4	%		30			0.2	%		19			63.3	%
Total costs and expenses		12,282			91.0	%		13,203			93.9	%		(921	)		(7.0	)%
Income before income tax provision		1,222			9.0	%		864			6.1	%		358			41.4	%
Income tax provision		257			1.9	%		150			1.1	%		107			71.3	%
Net income	$	965			7.1	%	$	714			5.1	%	$	251			35.2	%

Revenue

The Company’s consolidated revenues from operations increased approximately $2,882,000 or 11.1% for the six month period ended June 30, 2020 when compared to the same period in 2019. This is due to an increase in shipments and price/mix at the ATG of approximately $2,298,000 or 10.1% and an increase in shipments and price/mix at the CPG of approximately $584,000 or 17.6%.

The increase in revenue is attributable to an increase in shipments at the ATG of approximately $381,000 and an increase in price/mix of units shipped of approximately $1,917,000. Additionally, there was an increase in shipments at the CPG of approximately $470,000 and an increase in price/mix of units shipped of approximately $114,000 for the six month period ended June 30, 2020 when compared to the same period in 2019.

The Company’s consolidated revenues from operations decreased approximately $563,000 or (4.0)% for the three month period ended June 30, 2020 when compared to the same period in 2019. This is due to a decrease in shipments offset by an increase in price/mix at the ATG of approximately $921,000 or (7.6)% offset by an increase in shipments and price/mix at the CPG of approximately $358,000 or 18.7%.

The decrease in revenue is attributable to a decrease in shipments at the ATG of approximately $2,019,000 partially offset by an increase in price/mix of units shipped of approximately $1,098,000. Additionally, there was an increase in shipments at the CPG of approximately $243,000 and an increase in price/mix of units shipped of approximately $115,000 for the three month period ended June 30, 2020 when compared to the same period in 2019.

Gross Margin

The Company’s consolidated gross margins from operations increased approximately $2,389,000 or 44.7% for the six month period ended June 30, 2020 when compared to the same period in 2019.

- 20 -

Gross margin increased in the six month period due to an increase in shipments at the ATG of approximately $231,000 and an increase in price/mix of units shipped of approximately $1,229,000. Additionally, gross margin increased due to an increase in price/mix at the CPG of approximately $1,092,000 partially offset by a decrease in price/mix of units shipped of approximately $163,000 for the six month period ended June 30, 2020 when compared to the same period in 2019.

The Company’s consolidated gross margins from operations decreased approximately $250,000 or (7.6)% for the three month period ended June 30, 2020 when compared to the same period in 2019.

Gross margin decreased in the three month period due to a decrease in shipments at the ATG of approximately $1,768,000 partially offset by an increase in price/mix of units shipped of approximately $908,000. Additionally, gross margin increased due to an increase in price/mix of units shipped at the CPG of approximately $1,087,000 partially offset by a decrease in price/mix of approximately $477,000 for the three month period ended June 30, 2020 when compared to the same period in 2019.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses decreased approximately $286,000 or (6.6)% for the six month period ended June 30, 2020 compared to the same period in 2019. This net decrease is driven by an increase of approximately $126,000 at the ATG offset by a decrease of approximately $412,000 at the CPG. The ATG increase is driven by wages and employee related benefits, including postretirement benefits of approximately $491,000 offset by a reversal of bad debt expense of approximately $187,000 versus a bad debt expense charge of approximately $191,000 that was recognized in the six month period ending June 30, 2019. There was a net increase of approximately $13,000 in all other SG&A expenditures for the ATG for the six month period ended June 30, 2020 compared to the same period in 2019. The CPG decrease is driven by lower expenditures of approximately $142,000 related to sales promotion and support, approximately $134,000 for media and advertising, approximately $86,000 for trade shows and travel, and approximately $50,000 for the reversal of bad debt expense for the six month period ended June 30, 2020 compared to the same period in 2019.

- 21 -

Selling, general and administrative (SG&A) expenses decreased approximately $627,000 or (26.4)% for the three month period ended June 30, 2020 compared to the same period in 2019. This net decrease is driven by a decrease of approximately $337,000 at the ATG and a decrease of approximately $290,000 at the CPG. The net decrease at the ATG is driven by an increase in wages and employee related benefits of approximately $256,000 and professional fees of approximately $46,000 offset by a reversal of bad debt expense of approximately $256,000 versus a bad debt expense charge of approximately $191,000 that was recognized in the three month period ending June 30, 2019. Additional decreases in the ATG SG&A expenses include timing of legal expenses of approximately $132,000, travel, meals and lodging expenses of approximately $41,000 and a net decrease in all other SG&A expenses of approximately $19,000 for the three month period ended June 30, 2020 compared to the same period in 2019. The CPG decrease is driven by lower expenditures of approximately $102,000 for sales promotion and support, approximately $64,000 for trade shows and travel, approximately $61,000 for media and advertising, less bad debt expense of approximately $45,000 and a net decrease of approximately $18,000 in all other SG&A expenditures for the CPG for the three month period ended June 30, 2020 compared to the same period in 2019.

Interest Expense

Interest expense increased by 59.6% and 63.3% in the six and three month periods ended June 30, 2020, respectively, when compared to the same period in 2019. This is primarily due to the equipment lease/note and usage of the line of credit for the ATG for the six and three month periods ended June 30, 2020 compared to the same period in 2019. See also Note 5, Long-Term Debt, of the accompanying consolidated financial statements for information on long-term debt.

Income Taxes

The Company’s effective tax rate was approximately 21.0% and 17.4% for the three and six month periods ended June 30, 2020 and 2019, respectively. The effective tax rate in both years reflects federal and state income taxes, permanent non-deductible expenditures and the federal tax credit for research and development expenditures.

Net Income

Net income for the six month period ended June 30, 2020 increased approximately $2,051,000. This increase is primarily the result of increases in revenue at both the ATG and CPG business segments and a net decrease in selling, general and administrative expenses. Net income for the three month period ended June 30, 2020 increased approximately $251,000, when compared to the same periods in 2019. This increase is primarily the result of a decrease in revenue at the ATG business partially offset by an increase at the CPG business and decreases in selling, general and administrative expenses in both business segments.

Liquidity and Capital Resources

The Company’s primary liquidity and capital expenditure requirements relate to working capital needs; primarily inventory, accounts receivable, accounts payable, capital expenditures for property, plant and equipment and principal payments on debt. At June 30, 2020, the Company had working capital of approximately $35,247,000 ($27,659,000 – 2019) of which approximately $7,140,000 ($2,029,000 – 2019) was comprised of cash.

The Company generated approximately $1,476,000 in cash from operations during the six month period ended June 30, 2020 as compared to generating cash of approximately $638,000 during the same period in 2019. Cash was generated primarily through net income of approximately $2,863,000, adjustments to reconcile net income to net cash of approximately $708,000 offset by the net use of cash by all other operating changes of approximately $(2,095,000), primarily attributable to the increases of inventory.

The Company’s primary use of cash in its investing activities in the six month period ended June 30, 2020 are for building improvements and capital expenditures of approximately $593,000 for production requirements at the ATG.

The Company’s primary providing of cash in its financing activities in the six month period ended June 30, 2020 include proceeds from the line of credit and PPP Loan of approximately $4,750,000 partially offset by approximately $274,000 of principal payments on long-term debt, approximately $148,000 of principal payments on equipment financing obligations and approximately $100,000 for the purchase of treasury shares.

As of March 20, 2020, the Company increased its line of credit from $4,000,000 to $6,000,000.  As of July 31, 2020, the Company extended the line of credit to expire December 31, 2022. As of July 31, 2020, the interest rate is a rate per year equal to the bank’s prime rate or Libor plus 1.65%.  In addition, the Company is required to pay a commitment fee of 0.25% on the unused portion of the line of credit.  There was $3,750,000 balance outstanding at June 30, 2020 and $3,000,000 balance at December 31, 2019.

- 22 -

The Company has an equipment loan facility in the amount of $1,000,000 available until July 9, 2021. This line is non-revolving and non-renewable. The loan term for the equipment covered by the agreement is 60 months. Monthly payments are fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There is nothing outstanding as of June 30, 2020 and at December 31, 2019.

On April 21, 2020, the Company executed a promissory note (the “Note”) in the amount of $4,000,000 as part of the Paycheck Protection Program (the “PPP Loan”) administered by the Small Business Administration (the “SBA”) and authorized under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act”). The PPP Loan is being made through the Bank of America, NA (the “Lender”). The term of the PPP Loan is two years with an annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan will be deferred for the first six months of the loan term. Payments on any unforgiven amounts will begin on the date on which loan forgiveness is determined or 10 months after the end of the borrower’s covered period if forgiveness is not requested. Commencing one month after the expiration of the deferral period, the Company is required to pay the Lender the principal amount outstanding on the PPP Loan in equal monthly payments of principal and interest. 

The Company believes its cash generating capability and financial condition, together with available credit facilities will be adequate to meet our future operating, investing and financing needs.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

- 23 -

Item 4. Controls and Procedures

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 defined in Exchange Act Rule 13a-15(e)) as of June 30, 2020. Based upon that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in SEC reports under the Exchange Act (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.

Changes in Internal Controls

During the six month period ended June 30, 2020, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to affect, the Company’s internal controls over financial reporting.

- 24 -

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Except as set forth in Note 8, Litigation, there are no other legal proceedings which are material to the Company currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to materially adversely affect the business or earnings of the Company.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c)  Company Purchases of Company’s Equity Securities

2020 Periods	Total Number of Shares Purchased			Weighted Average Price $ Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares that may yet be Purchased under the Plans or Programs (1)
January - March		9,903	(2)	$	10.07		360		89,385
April		-			-		-		89,385
May		-			-		-		89,385
June		-			-		-		89,385
Total		9,903		$	10.07		360		89,385

(1)          The Company’s Board of Directors authorized the purchase of up to 450,000 shares of its common stock in the open market or in privately negotiated transactions. As of June 30, 2020, the Company has purchased 360,615 shares and there remains 89,385 shares available to purchase under this program. There were 360 shares purchased by the Company during the six month period ended June 30, 2020.

(2)            Includes 9,543 shares withheld by the Company in January 1, 2020 to satisfy statutory minimum withholding tax requirements for those participants who elected this option as permitted under the Company’s 2012 Long-Term Incentive Plan.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable

Item 6. Exhibits

10.1 Non-Employee Director Compensation Policy (Filed herewith)

31.1 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 (Filed herewith)

31.2 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 (Filed herewith)

- 25 -

32.1 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 (Filed herewith)

32.2 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 (Filed herewith)

101 The following materials from Servotronics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows and (v) the notes to the consolidated financial statements.

FORWARD-LOOKING STATEMENTS

In addition to historical information, certain sections of this Form 10-Q 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, the timing and amount of payment obligation relating to the arbitration award and the Company’s ability to pay these obligations. 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-Q. 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.

- 26 -

SIGNATURES

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

Date: August 13, 2020

SERVOTRONICS, INC.
By:	/s/ Kenneth D. Trbovich, Chief Executive Officer
	Kenneth D. Trbovich
	Chief Executive Officer
By:	/s/ Lisa F. Bencel, Chief Financial Officer
	Lisa F. Bencel
	Chief Financial Officer

- 27 -

EX-10.1

Exhibit 10.1

  Director Compensation Program including the Independent Director Compensation Policy pursuant to the 2012 Long Term Incentive Plan

Unless the context otherwise requires, all capitalized terms used herein shall have the respective meanings assigned to them in the Servotronics, Inc. 2012 Long Term Incentive Plan (the “Plan”).

EQUITY AWARDS

The following shall constitute the equity awards under the Independent Director Compensation Policy under the Plan:

Annual Retainer Share Award

(a)           Each year, as of the date of the Company’s annual meeting of shareholders, the Company shall automatically award Restricted Shares to each Independent Director who has been elected or reelected as a member of the Board of Directors at the annual meeting. The number of Restricted Shares shall be equal to $25,000 divided by the Fair Market Value of a Share on the date of such election. If a fraction results, the number of Shares shall be rounded up to the next whole number.

(b)           If an Independent Director is elected or appointed to the Board of Directors other than at an annual meeting of the Company and has not received an award pursuant to paragraph (a) during the twelve months preceding election or appointment, the Company shall automatically award to the Independent Director a number of Restricted Shares that is equal to the amount determined pursuant to paragraph (a) based on the date of election or appointment multiplied by a fraction, the numerator of which is the remainder of 365 minus the number of days between the adjournment of the last annual meeting and the effective date of the appointment or election, and the denominator of which is 365. If a fraction results, the number of Restricted Shares shall be rounded up to the next whole number.

(c)           The Company shall issue the Restricted Shares awarded under this paragraph (a) or (b) on the first business day following the effective date of the election, reelection or appointment. The Restricted Shares awarded under paragraph (a) will vest in four quarterly installments on the date of each of the three regularly scheduled quarterly board meetings to review the financial statements for the quarters ending June 30, September 30 and December 31 (each a “Quarterly Board Meeting”) each year following the annual meeting and the remainder of which shall vest on the date of the next annual meeting. The Restricted Shares awarded under paragraph (b) will vest in equal parts on the date of the remaining Quarterly Board Meetings and the remainder of which shall vest on the date of the next annual meeting. The Company will credit a bookkeeping account with amounts equal to the dividends payable with respect to the Restricted Shares and the amounts credited to the dividend account will be payable as the Restricted Shares vest. If an Independent ceases to serve as a Board member for any reason other than due to death, then all Restricted Stock that is not then vested shall be immediately forfeited. If an Independent Director ceases to serve as a Board member by reason of death then all Restricted Stock shall immediately become vested.

CASH COMPENSATION

Payment Amount

Independent Directors shall be eligible to receive an annual cash retainer of $60,000 for service on the Board. For purposes of this Policy, “annual” means from Annual Shareholders’ Meeting to Annual Shareholders’ Meeting each year.

No Separate Meeting Fees

No separate meeting fees shall be paid for Board or committee meetings or for actions taken by unanimous written consent in lieu of a meeting in accordance with the Company’s Bylaws.

Payment Schedule

The annual retainers for service on the Board as set forth above shall be paid by the Company in arrears in twelve equal monthly installments, the first installment being paid on the date of the one month anniversary of the Annual Shareholders’ Meeting and the remaining installments being paid on each successive one month anniversary date (each such payment date, a “Monthly Payment Date”); provided, however, that if the Company’s Annual Shareholders’ Meeting for the following year occurs prior to the end of the one year period, the final Monthly Payment Date shall be paid on the day of such Annual Shareholders’ Meeting. If any Independent Director holds office as a director of the Board for less than a full monthly period, such Independent Director shall only be entitled to a pro-rated amount of their applicable annual retainer as measured from the most recent Monthly Payment Date through the date on which the Independent Director shall have ceased to serve on the Board.

New Directors

In the event a new Independent Director is elected or appointed to the Board, such Independent Director shall be eligible to receive as compensation for service as a member of the Board a pro-rated amount of the annual retainer as measured from the date of appointment or election through the next scheduled Monthly Payment Date and thereafter shall be paid in conformity with the other Independent Directors.

TRAVEL EXPENSE REIMBURSEMENT

Each of the Independent Directors shall be entitled to receive reimbursement for reasonable travel expenses which they properly incur in connection with their functions and duties as a director.

Reimbursement for travel expenses incurred is also initiated by the Director, by submitting a Director Expense Reimbursement Form and accompanying receipts to the Finance Department. The reimbursement will be processed within one week of receipt by the Finance Department.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Kenneth D. Trbovich, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Servotronics, Inc.;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2020

/s/ Kenneth D. Trbovich, Chief Executive Officer

Kenneth D. Trbovich

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Lisa F. Bencel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Servotronics, Inc.;

2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2020
	/s/ Lisa F. Bencel, Chief Financial Officer
	Lisa F. Bencel
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Servotronics, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2020, I hereby certify solely for the purpose of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The quarterly report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934, and

2. The information contained in the quarterly report fairly represents, in all material respects, the financial condition and results of operations of the Company.

Date: August 13, 2020
	/s/ Kenneth D. Trbovich, Chief Executive Officer
	Kenneth D. Trbovich
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Servotronics, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2020, I hereby certify solely for the purpose of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The quarterly report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934, and

2. The information contained in the quarterly report fairly represents, in all material respects, the financial condition and results of operations of the Company.

Date: August 13, 2020
	/s/Lisa F. Bencel, Chief Financial Officer
	Lisa F. Bencel
	Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Jul. 28, 2020
Document and Entity Information [Abstract]
Document Type	10-Q
Document Period End Date	Jun. 30, 2020
Entity Registrant Name	SERVOTRONICS INC /DE/
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		2,477,099
Entity Central Index Key	0000089140
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false
Trading Symbol	svt

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current assets:
Cash	$ 7,140	$ 2,029
Accounts receivable, net	10,259	13,183
Inventories, net	25,095	20,151
Prepaid income taxes		416
Other current assets	642	522
Total current assets	43,136	36,301
Property, plant and equipment, net	12,599	12,717
Deferred income taxes	107	107
Other non-current assets	338	345
Total Assets	56,180	49,470
Current liabilities:
Current portion of long-term debt	548	548
Current portion of equipment financing lease obligations	301	301
Dividend payable	16	17
Accounts payable	3,743	4,458
Accrued employee compensation and benefits costs	2,286	2,283
Accrued income taxes	167
Other accrued liabilities	828	1,035
Total current liabilities	7,889	8,642
Long-term debt	9,500	5,170
Post retirement obligation	2,324	2,126
Shareholders' equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,614,506 shares; outstanding 2,389,673 (2,399,576 - 2019) shares	523	523
Capital in excess of par value	14,430	14,358
Retained earnings	23,347	20,484
Accumulated other comprehensive income	98	98
Employee stock ownership trust commitment	(460)	(460)
Treasury stock, at cost 137,407 (127,504 - 2019) shares	(1,471)	(1,471)
Total shareholders' equity	36,467	33,532
Total Liabilities and Shareholders' Equity	$ 56,180	$ 49,470

XML

CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
CONSOLIDATED BALANCE SHEETS
Common stock, par value (in dollars per share)	$ 0.20	$ 0.20
Common stock, shares authorized	4,000,000	4,000,000
Common stock, shares issued	2,614,506	2,614,506
Common stock, shares outstanding	2,389,673	2,399,576
Treasury stock, shares	137,407	127,504

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
CONSOLIDATED STATEMENTS OF INCOME
Revenue	$ 13,504		$ 14,067		$ 28,952	$ 26,070
Cost of goods sold, inclusive of depreciation and amortization	10,484		10,798		21,220	20,728
Gross margin	3,020		3,269		7,732	5,342
Operating Expenses:
Selling, general and administrative	1,748		2,375		4,016	4,302
Interest expense	50		30		92	57
Total operating expenses	1,798		2,405		4,108	4,359
Income before income tax provision	1,222		864		3,624	983
Income tax provision	257		150		761	171
Net income	$ 965	$ 1,898	$ 714	$ 98	$ 2,863	$ 812
Basic
Net Income per share (in dollars per share)	$ 0.41		$ 0.31		$ 1.21	$ 0.35
Diluted
Net income per share (in dollars per share)	$ 0.40		$ 0.30		$ 1.20	$ 0.34

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows related to operating activities:
Net Income	$ 2,863,000	$ 812,000
Adjustments to reconcile net income to net cash generated by operating activities:
Depreciation and amortization	718,000	563,000
Stock based compensation	172,000	153,000
Decrease in allowance doubtful accounts	(181,000)	(26,000)
Increase/(Decrease) in inventory reserve	132,000	(4,000)
Decrease in warranty reserve	(133,000)	(8,000)
Change in assets and liabilities:
Accounts receivable	3,106,000	(357,000)
Inventories	(5,076,000)	(1,780,000)
Prepaid income taxes	583,000	104,000
Other current assets	(120,000)	(41,000)
Other non-current assets		6,000
Accounts payable	(715,000)	1,195,000
Accrued employee compensation and benefit costs	3,000	(20,000)
Other accrued liabilities	124,000	41,000
Net cash generated by operating activities	1,476,000	638,000
Cash flows related to investing activities:
Capital expenditures - property, plant and equipment	(593,000)	(1,140,000)
Note Receivable		(125,000)
Net cash used by investing activities	(593,000)	(1,265,000)
Cash flows related to financing activities:
Principal payments on long-term debt	(274,000)	(274,000)
Principal payments on equipment financing lease/note obligations	(148,000)	(87,000)
Proceeds from equipment note and equipment financing lease		388,000
Proceeds from line of credit	750,000
Proceeds from paycheck protection program	4,000,000
Purchase of treasury shares	(100,000)	(149,000)
Net cash generated/(used) by financing activities	4,228,000	(122,000)
Net increase/(decrease) in cash	5,111,000	(749,000)
Cash at beginning of period	2,029,000	2,598,000
Cash at end of period	$ 7,140,000	1,849,000
Supplemental Cash Flow Information:
Equipment acquired through financing paid directly to vendor		$ 213,000

XML

Basis of Presentation

6 Months Ended

Jun. 30, 2020

Basis of Presentation

Basis of Presentation

1.           Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10‑Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States 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 and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The consolidated financial statements should be read in conjunction with the 2019 annual report and the notes thereto.

XML

Business Description and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

Business Description and Summary of Significant Accounting Policies

Business Description and Summary of Significant Accounting Policies

2.           Business Description and Summary of Significant Accounting Policies

Business Description

Servotronics, Inc. and its subsidiaries design, manufacture and market advanced technology products consisting primarily of control components, and consumer products consisting of knives and various types of cutlery and other edged products.

Principles of Consolidation

The consolidated financial statements include the accounts of Servotronics, Inc. and its wholly-owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated upon consolidation.

Cash

The Company considers cash to include all currency and coins owned by the Company as well as all deposits in the bank including checking accounts and savings accounts.

Accounts Receivable

The Company grants credit to substantially all of its customers and carries its accounts receivable at original invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on history of past write-offs, collections, and current credit conditions. The allowance for doubtful accounts amounted to approximately $156,000 at June 30, 2020 and $337,000 at December 31, 2019. The Company does not accrue interest on past due receivables.

Revenue Recognition

Revenues are recognized at the time of shipment of goods, transfer of title and customer acceptance, as required.  Our revenue transactions generally consist of a single performance obligation to transfer contracted goods and are not accounted for under industry-specific guidance.  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.  Service sales, principally representing repair, are recognized at the time of shipment of goods.

The costs incurred for nonrecurring engineering, development and repair activities of our products under agreements with commercial customers are expensed as incurred.  Subsequently, the revenue is recognized as products are delivered to the customers with the approval by the customers. 

Revenue is recognized at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods and services to a customer.  The Company determines revenue recognition using the following five steps:  (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when the company satisfies a performance obligation.

Revenue excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (e.g., sales and use taxes).  Revenue includes payments for shipping activities that are reimbursed by the customer to the Company.

Performance obligations are satisfied as of a point in time.  Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services.  The timing of satisfying the performance obligation is typically indicated by the terms of the contract.  As a significant portion of the Company’s revenue are recognized at the time of shipment, transfer of title and customer acceptance, there is no significant judgment applied to determine the timing of the satisfaction of performance obligations or transaction price.

The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment.  The Company generally receives payment for these contracts within the payment terms negotiated and agreed upon by each customer contract. 

Warranty and repair obligations are assessed on all returns.  Revenue is not recorded on any warranty returns.  The Company warrants its products against design, materials and workmanship based on an average of twenty-seven months.  The Company determines warranty reserves needed based on actual average costs of warranty units shipped and current facts and circumstances.  As of June 30, 2020 and December 31, 2019 under the guidance of ASC460 the Company has recorded a warranty reserve of approximately $287,000 and $420,000, respectively. This amount is reflected in other accrued expenses in the accompanying balance sheet.  Revenue is recognized on repair returns, covered under a customer contract, at the contractual price upon shipment to the customer.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost includes all costs incurred to bring each product to its present location and condition. Market provisions in respect of lower of cost or market adjustments and inventory expected to be used in greater than two years are applied to the gross value of the inventory through a reserve of approximately $1,569,000 and $1,437,000 at June 30, 2020 and December 31, 2019, respectively. Pre-production and start-up costs are expensed as incurred.

The purchase of suppliers’ minimum economic quantities of material such as steel, etc. may result in a purchase of quantities exceeding one year of customer requirements. Also, in order to maintain a reasonable and/or agreed to lead time, certain larger quantities of other product support items may have to be purchased and may result in over one year’s supply. These amounts are not included in the inventory reserve discussed above.

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.

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 income tax purposes. Depreciation expense includes the amortization of right-of-use (“ROU”) assets accounted for as finance leases. The estimated useful lives of depreciable properties are generally as follows:

Buildings and improvements	5-40  years
Machinery and equipment	5-20  years
Tooling	3‑5 years

Income Taxes

	For the Six Months Ended
	June 30,
	2020			2019			% Change
	($000's omitted)
Income tax expense	$	761		$	171		345	%
Effective tax rate		21.0	%		17.4	%	3.6	%

The higher effective tax rate during the six months ended June 30, 2020 was primarily due to a decrease in permanent deductible expenses.

In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law on March 27, 2020.  The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits.  The Company is currently evaluating the impact of these measures on its consolidated financial statements.  If these measures are determined to be applicable to the Company, they may result in cash refunds and an income tax benefit recorded in the consolidated statement of income.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities, as well as operating loss and credit carryforwards. The Company and its subsidiaries file a consolidated federal income tax return, combined New York and Texas state income tax returns and various separate state income tax returns.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at June 30, 2020 or December 31, 2019, and did not recognize any interest and/or penalties in its consolidated statements of income during the three months ended June 30, 2020 and 2019. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of June 30, 2020 and December 31, 2019. On July 16, 2020, the Company was notified that the 2017 federal income tax return was randomly selected for examination. The 2016 through 2018 federal and state tax returns remain subject to examination.

Supplemental Cash Flow Information

Income taxes paid during the six months ended June 30, 2020 and 2019 amounted to approximately $42,000 and $0, respectively. Interest paid during the six months ended June 30, 2020 and 2019 amounted to approximately $84,000 and $57,000, respectively.

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 annually or 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. Due to the losses incurred by our Consumer Products Group ("CPG"), we performed a test for recoverability of the long-lived assets by comparing its carrying value to the future undiscounted cash flows that we expect will be generated by the asset group. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. The Company has determined that no impairment of long-lived assets existed at June 30, 2020 and December 31, 2019.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain balances, as previously reported, were reclassified to conform to classifications adopted in the current period.

Research and Development Costs

Research and development costs are expensed as incurred.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentration of credit risks principally consist of cash accounts in financial institutions. Although the accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institutions.

Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, 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.

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Inventories

6 Months Ended

Jun. 30, 2020

Inventories

Inventories

3.           Inventories

	June 30,		December 31,
	2020		2019
	($000’s omitted)
Raw material and common parts	$	17,469	$	14,707
Work-in-process		5,684		4,158
Finished goods		3,511		2,723
		26,664		21,588
Less inventory reserve		(1,569)		(1,437)
Total inventories	$	25,095	$	20,151

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Property, Plant and Equipment

6 Months Ended

Jun. 30, 2020

Property, Plant and Equipment

Property, Plant and Equipment

4.           Property, Plant and Equipment

	June 30,		December 31,
	2020		2019
	($000’s omitted)
Land	$	7	$	7
Buildings		11,158		11,017
Machinery, equipment and tooling		21,036		20,695
Construction in progress		442		331
		32,643		32,050
Less accumulated depreciation and amortization		(20,044)		(19,333)
Total property, plant and equipment	$	12,599	$	12,717

Depreciation and amortization expense amounted to approximately $363,000 and $289,000 for the three months ended June 30, 2020 and 2019, respectively.  Amortization expense primarily related to ROU assets amounted to approximately $17,000 and $21,000 for the three months ended June 30, 2020 and 2019, respectively. Depreciation and amortization expense amounted to approximately $718,000 and $563,000 for the six months ended June 30, 2020 and 2019, respectively. Amortization expense, primarily related to ROU assets, amounted to approximately $35,000 and $41,000 for the six months ended June 30, 2020 and 2019, respectively. The Company 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.

As of June 30, 2020, there is approximately $442,000 ($331,000 – December 31, 2019) of construction in progress (CIP) included in property, plant and equipment all of which is related to capital projects. There is approximately $298,000 in CIP for machinery & equipment and self-constructed assets ($280,000 – December 2019), $27,000 for computer equipment ($32,000 – December 2019) and $117,000 for building improvements ($19,000 – December 2019) primarily related to the Advanced Technology Group “ATG”.

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Long-Term Debt

6 Months Ended

Jun. 30, 2020

Long-Term Debt

Long-Term Debt

5.           Long-Term Debt

	June 30,		December 31,
	2020		2019
	($000’s omitted)
Paycheck protection progam payable to financial institutions: Interest rate of 1% per annum. Unforgiven portion is payable monthly until April 20, 2022 (A)	$	4,000	$	—
Line of credit payable to a financial institution; Interest rate option of bank prime or Libor plus 1.65%  (1.579% as of June 30, 2020) (B) (C )		3,750		3,000
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4%  (1.573% as of June 30, 2020), monthly prinicipal payments of $21,833 through 2021 with a balloon payment of $786,000 due December 1, 2021 (C)		1,179		1,310
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4%  (2.981130% as of June 30, 2020), monthly prinicipal payments of $23,810 through December 1, 2021 (C)		430		571
Equipment note obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.8259% - 1.835015% as of June 30, 2020) (D)		602		670
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) (E)		388		468
		10,349		6,019
Less current portion		(849)		(849)
	$	9,500	$	5,170

A.) On April 21, 2020, the Company executed a promissory note (the "Note") in the amount of $4,000,000 as part of the Paycheck Protection Program (the "PPP Loan") administered by the Small Business Administration (the "SBA") and authorized under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act"). The PPP Loan is being made through the Bank of America, NA (the "Lender"). The term of the PPP Loan is two years with an annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan will be deferred for the first six months of the loan term. Payments on any unforgiven amounts will begin on the date on which loan forgiveness is determined or 10 months after the end of the borrower's covered period if forgiveness is not requested. Commencing one month after the expiration of the deferral period, the Company is required to pay the Lender the principal amount outstanding on the PPP Loan in equal monthly payments of principal and interest.

B.) As of March 20, 2020, the Company increased its line of credit from $4,000,000 to $6,000,000. As of July 31, 2020, the Company extended the line of credit to expire December 31, 2022. As of July 31, 2020, the interest rate is a rate per year equal to the bank’s prime rate or Libor plus 1.65%. In addition, the Company is required to pay a commitment fee of 0.25% per year on the unused portion of the line of credit.  There was $3,750,000 balance outstanding at June 30, 2020 and $3,000,000 balance at December 31, 2019. 

C.) The term loans and line of credit are secured by all personal property of the Company with the exception of certain equipment that was purchased from proceeds of government grants.  Certain lenders require the Company to comply with debt covenants as described in the specific loan documents, including a debt service ratio. At June 30, 2020 and December 31, 2019 the Company was in compliance with these covenants.

D.) The Company had an equipment loan facility in the amount of $2,500,000 available until November 30, 2019.  This line was non-revolving and non-renewable.  The Company used approximately $721,000 of the available funds for the purchase of machinery and equipment.  The loan term for the equipment covered by the agreement is 60 months.  Monthly payments are fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding.  There was approximately $602,000 outstanding at June 30, 2020 and $670,000 at December 31, 2019.

E.) The Company established a lease line of credit for equipment financing in the amount of $1,000,000 available until June 28, 2018.  This line was non-revolving and non-renewable.  The lease term for equipment covered by the lease line of credit is 60 months.  Monthly payments are fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding.  There was approximately $388,000 outstanding at June 30, 2020 and $468,000 at December 31, 2019.

F.) The Company has an equipment loan facility in the amount of $1,000,000 available until July 9, 2021. This line was non-revolving and non-renewable. The loan term for the equipment covered by the agreement is 60 months. Monthly payments are fixed for the term of each funding based upon the Lender's lease pricing in effect at the time of such funding. There is nothing outstanding as of June 30, 2020 and at December 31, 2019.

Remaining principal maturities of long-term debt are as follows:  2020 - $430,000, 2021 - $4,635,000, 2022 - $5,037,000, 2023 - $154,000 and 2024 - $93,000.  Remaining principal payments and interest payments for the capital note and capital equipment financing lease obligations for each of the next five years:

	June 30,		December 31,
Year	2020		2019
	($000’s omitted)
2020	$	166	$	331
2021		331		331
2022		316		316
2023		169		169
2024		97		97
Total principal and interest payments		1,079		1,244
Less amount representing interest		(89)		(106)
Present value of net minimum lease payments		990		1,138
Less current portion		(301)		(301)
Long-term principle payments	$	689	$	837

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Shareholders' Equity

6 Months Ended

Jun. 30, 2020

Shareholders' Equity

Shareholders' Equity

6.Shareholders’ Equity

	Six-month Period Ended June 30, 2020
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		Common Stock		par value		ESOT		stock		equity
January 1, 2020	$	20,484	$	98	$	523	$	14,358	$	(460)	$	(1,471)	$	33,532
Purchase of treasury shares		—		—		—		—		—		(100)		(100)
Stock based compensation		—		—		—		33		—		52		85
Net Income		1,898		—		—		—		—		—		1,898
March 31, 2020	$	22,382	$	98	$	523	$	14,391	$	(460)	$	(1,519)	$	35,415
Stock based compensation		—		—		—		39		—		48		87
Net Income		965		—		—		—		—		—		965
June 30, 2020	$	23,347	$	98	$	523	$	14,430	$	(460)	$	(1,471)	$	36,467

	Six-month Period Ended June 30, 2019
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		Common Stock		par value		ESOT		stock		equity
January 1, 2019	$	18,788	$	35	$	523	$	14,250	$	(561)	$	(1,522)	$	31,513
Purchase of treasury shares		—		—		—		—		—		(128)		(128)
Stock based compensation		—		—		—		14		—		44		58
Net Income		98		—		—		—		—		—		98
March 31, 2019	$	18,886	$	35	$	523	$	14,264	$	(561)	$	(1,606)	$	31,541
Dividends declared ($0.16 per share)		(413)		—		—		—		—		—		(413)
Purchase of treasury shares		—		—		—		—		—		(21)		(21)
Stock based compensation		—		—		—		34		—		61		95
Net Income		714		—		—		—		—		—		714
June 30, 2019	$	19,187	$	35	$	523	$	14,298	$	(561)	$	(1,566)	$	31,916

The Company’s Board of Directors authorized the purchase of up to 450,000 shares of its common stock in the open market or in privately negotiated transactions. As of June 30, 2020, the Company has purchased 360,615 shares and there remains 89,385 shares available to purchase under this program. There were 360 and 4,502 shares purchased by the Company during the six month period ended June 30, 2020 and 2019, respectively.

The Company’s 2012 Long-Term Incentive Plan provides for the granting of stock awards, including restricted stock, stock options and stock appreciation rights, to employees and non-employees, including directors of the Company. Compensation expense is amortized over the related service period, which is normally three years. Shares of unvested restricted stock are generally forfeited if a recipient leaves the Company before the vesting date.  Shares that are forfeited become available for future awards.

The following is a summary of restricted stock activity for the six months ended June 30, 2020. Of the shares that vested, the Company withheld 9,543 shares to satisfy the tax obligations for those participants who elected this option as permitted under the applicable equity plan.

	Shares
Restricted Share Activity:
Unvested at December 31, 2019	54,416
Granted	—
Forfeited	—
Vested	29,166
Unvested at June 30, 2020	25,250

Earnings Per Share

Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding, are considered forfeitable until the restrictions lapse and will not be included in the basic EPS calculation until the shares are vested. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common 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 the earnings per share that 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. The dilutive effect of unvested restrictive stock is determined using the treasury stock method.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	($000’s omitted except per share data)
Net Income	$	965	$	714	$	2,863	$	812
Weighted average common shares outstanding (basic)		2,364		2,324		2,364		2,322
Unvested restricted stock		25		60		25		60
Weighted average common shares outstanding (diluted)		2,389		2,384		2,389		2,382
Basic
Net income per share	$	0.41	$	0.31	$	1.21	$	0.35
Diluted
Net income per share	$	0.40	$	0.30	$	1.20	$	0.34

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies

Commitments and Contingencies

7.           Commitments and Contingencies

Post retirement obligation. As previously disclosed in filings with the Securities and Exchange Commission (“SEC”), the Company, under an employment agreement, is expected to pay post- employment health related benefits to a former Executive Officer of the Company (the “Former Employee”), of which approximately $1,663,000 and $1,543,000 has been accrued as of June 30, 2020 and December 31, 2019, and is reflected as Post Retirement Obligation in the accompanying consolidated balance sheet.

Employment Agreements. The Company provides certain post-employment health and life insurance benefits for its Chief Executive Officer and President Kenneth Trbovich. Upon retirement and after attaining at least the age of 65, the Company will pay for the retired Executive’s and dependent’s health benefits and will continue the Company-provided life insurance offered at the time of retirement. The retiree’s health insurance benefits ceases upon the death of the retired executive. Approximately $661,000 and $583,000 has been accrued as of June 30, 2020 and December 31, 2019, respectively, and is reflected as Post Retirement Obligation in the accompanying consolidated balance sheet.

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Litigation

6 Months Ended

Jun. 30, 2020

Litigation

Litigation

8.           Litigation

Litigation. The Company has pending litigation relative to leases of certain equipment and real property with a former related party. Aero, Inc. is suing Servotronics, Inc. and its wholly owned subsidiary and has alleged damages in the amount of $3,000,000. The Company has filed a response to the Aero, Inc. lawsuit and has also filed a counter-claim in the amount of $3,191,000. The Company considers the risk of loss remote, and is unable to reasonably or accurately estimate the likelihood and amount of any liability or benefit that may be realized as a result of this litigation. Accordingly, no gain or loss has been recognized in the accompanying consolidated financials statements related to this litigation.

There are no other legal proceedings currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to have a material adverse effect on the business or earnings of the Company.

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Related Party Transactions

6 Months Ended

Jun. 30, 2020

Related Party Transactions

Related Party Transactions

9.           Related Party Transactions

The Company paid legal fees and disbursements of approximately $132,000 and $48,000 in the six month period ended June 30, 2020 and 2019, respectively, for services provided by a law firm that is owned by a member of the Company’s Board of Directors. Legal fees paid for the three month period ended June 30, 2020 and 2019 amounted to approximately $37,000 and $29,000, respectively. Additionally, the Company had accrued unbilled legal fees at June 30, 2020 and 2019 of approximately $25,000 and $22,000, respectively, with this firm.

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Business Segments

6 Months Ended

Jun. 30, 2020

Business Segments

Business Segments

10.           Business Segments

The Company operates in two business segments, ATG and 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 primarily involve the design, manufacture, and marketing of servo-control components (i.e., torque motors, 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 portion of finished products are for foreign end use.

As of June 30, 2020, the Company had identifiable assets of approximately $56,180,000 ($49,470,000 – December 31, 2019) of which approximately $46,208,000 ($39,980,000 – December 31, 2019) was for ATG and approximately $9,972,000 ($9,490,000 – December 31, 2019) was for CPG.

Information regarding the Company’s operations in these segments is summarized as follows:

	($000’s omitted except per share data)
	ATG						CPG						Consolidated
	Six Months Ended						Six Months Ended						Six Months Ended
	June 30,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
Revenues from unaffiliated customers	$	25,044		$	22,746		$	3,908		$	3,324		$	28,952		$	26,070
Cost of goods sold, inclusive of depreciation		(17,860)			(17,022)			(3,361)			(3,706)			(21,221)			(20,728)
Gross margin		7,184			5,724			547			(382)			7,731			5,342
Gross margin %		28.7	%		25.2	%		14.0	%		(11.5)	%		26.7	%		20.5	%
Selling, general and administrative		(3,145)			(3,019)			(871)			(1,283)			(4,016)			(4,302)
Interest		(84)			(41)			(7)			(16)			(91)			(57)
Total costs and expenses		(21,089)			(20,082)			(4,239)			(5,005)			(25,328)			(25,087)
Income/(loss) before income tax provision		3,955			2,664			(331)			(1,681)			3,624			983
Income tax provision (benefits)		830			463			(69)			(292)			761			171
Net income/(loss)	$	3,125		$	2,201		$	(262)		$	(1,389)		$	2,863		$	812
Capital expenditures	$	541		$	1,161		$	52		$	192		$	593		$	1,353

	($000’s omitted except per share data)
	ATG						CPG						Consolidated
	Three Months Ended						Three Months Ended						Three Months Ended
	June 30,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
Revenues from unaffiliated customers	$	11,230		$	12,151		$	2,274		$	1,916		$	13,504		$	14,067
Cost of goods sold, inclusive of depreciation		(8,494)			(8,555)			(1,991)			(2,243)			(10,485)			(10,798)
Gross margin		2,736			3,596			283			(327)			3,019			3,269
Gross margin %		24.4	%		29.6	%		12.4	%		(17.1)	%		22.4	%		23.2	%
Selling, general and administrative		(1,402)			(1,739)			(346)			(636)			(1,748)			(2,375)
Interest		(46)			(22)			(3)			(8)			(49)			(30)
Total costs and expenses		(9,942)			(10,316)			(2,340)			(2,887)			(12,282)			(13,203)
Income/(loss) before income tax provision		1,288			1,835			(66)			(971)			1,222			864
Income tax provision (benefits)		270			318			(13)			(168)			257			150
Net income/(loss)	$	1,018		$	1,517		$	(53)		$	(803)		$	965		$	714
Capital expenditures	$	128		$	562		$	52		$	149		$	180		$	711

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Business Description and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Business Description and Summary of Significant Accounting Policies

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of Servotronics, Inc. and its wholly-owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated upon consolidation.

Cash

Cash

The Company considers cash to include all currency and coins owned by the Company as well as all deposits in the bank including checking accounts and savings accounts.

Accounts Receivable

Accounts Receivable

The Company grants credit to substantially all of its customers and carries its accounts receivable at original invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on history of past write-offs, collections, and current credit conditions. The allowance for doubtful accounts amounted to approximately $156,000 at June 30, 2020 and $337,000 at December 31, 2019. The Company does not accrue interest on past due receivables.

Revenue Recognition

Revenue Recognition

Revenues are recognized at the time of shipment of goods, transfer of title and customer acceptance, as required.  Our revenue transactions generally consist of a single performance obligation to transfer contracted goods and are not accounted for under industry-specific guidance.  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.  Service sales, principally representing repair, are recognized at the time of shipment of goods.

The costs incurred for nonrecurring engineering, development and repair activities of our products under agreements with commercial customers are expensed as incurred.  Subsequently, the revenue is recognized as products are delivered to the customers with the approval by the customers. 

Revenue is recognized at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods and services to a customer.  The Company determines revenue recognition using the following five steps:  (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when the company satisfies a performance obligation.

Revenue excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (e.g., sales and use taxes).  Revenue includes payments for shipping activities that are reimbursed by the customer to the Company.

Performance obligations are satisfied as of a point in time.  Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services.  The timing of satisfying the performance obligation is typically indicated by the terms of the contract.  As a significant portion of the Company’s revenue are recognized at the time of shipment, transfer of title and customer acceptance, there is no significant judgment applied to determine the timing of the satisfaction of performance obligations or transaction price.

The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment.  The Company generally receives payment for these contracts within the payment terms negotiated and agreed upon by each customer contract. 

Warranty and repair obligations are assessed on all returns.  Revenue is not recorded on any warranty returns.  The Company warrants its products against design, materials and workmanship based on an average of twenty-seven months.  The Company determines warranty reserves needed based on actual average costs of warranty units shipped and current facts and circumstances.  As of June 30, 2020 and December 31, 2019 under the guidance of ASC460 the Company has recorded a warranty reserve of approximately $287,000 and $420,000, respectively. This amount is reflected in other accrued expenses in the accompanying balance sheet.  Revenue is recognized on repair returns, covered under a customer contract, at the contractual price upon shipment to the customer.

Inventories

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost includes all costs incurred to bring each product to its present location and condition. Market provisions in respect of lower of cost or market adjustments and inventory expected to be used in greater than two years are applied to the gross value of the inventory through a reserve of approximately $1,569,000 and $1,437,000 at June 30, 2020 and December 31, 2019, respectively. Pre-production and start-up costs are expensed as incurred.

The purchase of suppliers’ minimum economic quantities of material such as steel, etc. may result in a purchase of quantities exceeding one year of customer requirements. Also, in order to maintain a reasonable and/or agreed to lead time, certain larger quantities of other product support items may have to be purchased and may result in over one year’s supply. These amounts are not included in the inventory reserve discussed above.

Shipping and Handling Costs

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

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.

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 income tax purposes. Depreciation expense includes the amortization of right-of-use (“ROU”) assets accounted for as finance leases. The estimated useful lives of depreciable properties are generally as follows:

Buildings and improvements	5-40  years
Machinery and equipment	5-20  years
Tooling	3‑5 years

Income Taxes

Income Taxes

	For the Six Months Ended
	June 30,
	2020			2019			% Change
	($000's omitted)
Income tax expense	$	761		$	171		345	%
Effective tax rate		21.0	%		17.4	%	3.6	%

The higher effective tax rate during the six months ended June 30, 2020 was primarily due to a decrease in permanent deductible expenses.

In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law on March 27, 2020.  The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits.  The Company is currently evaluating the impact of these measures on its consolidated financial statements.  If these measures are determined to be applicable to the Company, they may result in cash refunds and an income tax benefit recorded in the consolidated statement of income.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities, as well as operating loss and credit carryforwards. The Company and its subsidiaries file a consolidated federal income tax return, combined New York and Texas state income tax returns and various separate state income tax returns.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at June 30, 2020 or December 31, 2019, and did not recognize any interest and/or penalties in its consolidated statements of income during the three months ended June 30, 2020 and 2019. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of June 30, 2020 and December 31, 2019. On July 16, 2020, the Company was notified that the 2017 federal income tax return was randomly selected for examination. The 2016 through 2018 federal and state tax returns remain subject to examination.

Supplemental Cash Flow Information

Supplemental Cash Flow Information

Income taxes paid during the six months ended June 30, 2020 and 2019 amounted to approximately $42,000 and $0, respectively. Interest paid during the six months ended June 30, 2020 and 2019 amounted to approximately $84,000 and $57,000, respectively.

Employee Stock Ownership Plan

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

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment annually or 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. Due to the losses incurred by our Consumer Products Group ("CPG"), we performed a test for recoverability of the long-lived assets by comparing its carrying value to the future undiscounted cash flows that we expect will be generated by the asset group. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. The Company has determined that no impairment of long-lived assets existed at June 30, 2020 and December 31, 2019.

Use of Estimates

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Reclassifications

Certain balances, as previously reported, were reclassified to conform to classifications adopted in the current period.

Research and Development Costs

Research and Development Costs

Research and development costs are expensed as incurred.

Concentration of Credit Risks

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentration of credit risks principally consist of cash accounts in financial institutions. Although the accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institutions.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, 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.

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Business Description and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2020

Business Description and Summary of Significant Accounting Policies

Schedule of estimated useful lives of property, plant and equipment

Buildings and improvements	5-40  years
Machinery and equipment	5-20  years
Tooling	3‑5 years

Summary of income tax

	For the Six Months Ended
	June 30,
	2020			2019			% Change
	($000's omitted)
Income tax expense	$	761		$	171		345	%
Effective tax rate		21.0	%		17.4	%	3.6	%

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Inventories (Tables)

6 Months Ended

Jun. 30, 2020

Inventories

Schedule of inventories

	June 30,		December 31,
	2020		2019
	($000’s omitted)
Raw material and common parts	$	17,469	$	14,707
Work-in-process		5,684		4,158
Finished goods		3,511		2,723
		26,664		21,588
Less inventory reserve		(1,569)		(1,437)
Total inventories	$	25,095	$	20,151

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Property, Plant and Equipment (Tables)

6 Months Ended

Jun. 30, 2020

Property, Plant and Equipment

Schedule of property, plant and equipment

	June 30,		December 31,
	2020		2019
	($000’s omitted)
Land	$	7	$	7
Buildings		11,158		11,017
Machinery, equipment and tooling		21,036		20,695
Construction in progress		442		331
		32,643		32,050
Less accumulated depreciation and amortization		(20,044)		(19,333)
Total property, plant and equipment	$	12,599	$	12,717

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Long-Term Debt (Tables)

6 Months Ended

Jun. 30, 2020

Long-Term Debt

Schedule of long-term debt

	June 30,		December 31,
	2020		2019
	($000’s omitted)
Paycheck protection progam payable to financial institutions: Interest rate of 1% per annum. Unforgiven portion is payable monthly until April 20, 2022 (A)	$	4,000	$	—
Line of credit payable to a financial institution; Interest rate option of bank prime or Libor plus 1.65%  (1.579% as of June 30, 2020) (B) (C )		3,750		3,000
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4%  (1.573% as of June 30, 2020), monthly prinicipal payments of $21,833 through 2021 with a balloon payment of $786,000 due December 1, 2021 (C)		1,179		1,310
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4%  (2.981130% as of June 30, 2020), monthly prinicipal payments of $23,810 through December 1, 2021 (C)		430		571
Equipment note obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.8259% - 1.835015% as of June 30, 2020) (D)		602		670
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) (E)		388		468
		10,349		6,019
Less current portion		(849)		(849)
	$	9,500	$	5,170

Schedule of payments for capital lease obligations

	June 30,		December 31,
Year	2020		2019
	($000’s omitted)
2020	$	166	$	331
2021		331		331
2022		316		316
2023		169		169
2024		97		97
Total principal and interest payments		1,079		1,244
Less amount representing interest		(89)		(106)
Present value of net minimum lease payments		990		1,138
Less current portion		(301)		(301)
Long-term principle payments	$	689	$	837

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Shareholders' Equity (Tables)

6 Months Ended

Jun. 30, 2020

Shareholders' Equity

Schedule of stockholders equity

	Six-month Period Ended June 30, 2020
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		Common Stock		par value		ESOT		stock		equity
January 1, 2020	$	20,484	$	98	$	523	$	14,358	$	(460)	$	(1,471)	$	33,532
Purchase of treasury shares		—		—		—		—		—		(100)		(100)
Stock based compensation		—		—		—		33		—		52		85
Net Income		1,898		—		—		—		—		—		1,898
March 31, 2020	$	22,382	$	98	$	523	$	14,391	$	(460)	$	(1,519)	$	35,415
Stock based compensation		—		—		—		39		—		48		87
Net Income		965		—		—		—		—		—		965
June 30, 2020	$	23,347	$	98	$	523	$	14,430	$	(460)	$	(1,471)	$	36,467

	Six-month Period Ended June 30, 2019
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		Common Stock		par value		ESOT		stock		equity
January 1, 2019	$	18,788	$	35	$	523	$	14,250	$	(561)	$	(1,522)	$	31,513
Purchase of treasury shares		—		—		—		—		—		(128)		(128)
Stock based compensation		—		—		—		14		—		44		58
Net Income		98		—		—		—		—		—		98
March 31, 2019	$	18,886	$	35	$	523	$	14,264	$	(561)	$	(1,606)	$	31,541
Dividends declared ($0.16 per share)		(413)		—		—		—		—		—		(413)
Purchase of treasury shares		—		—		—		—		—		(21)		(21)
Stock based compensation		—		—		—		34		—		61		95
Net Income		714		—		—		—		—		—		714
June 30, 2019	$	19,187	$	35	$	523	$	14,298	$	(561)	$	(1,566)	$	31,916

Summary of restricted stock activity

	Shares
Restricted Share Activity:
Unvested at December 31, 2019	54,416
Granted	—
Forfeited	—
Vested	29,166
Unvested at June 30, 2020	25,250

Schedule of earnings per share

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	($000’s omitted except per share data)
Net Income	$	965	$	714	$	2,863	$	812
Weighted average common shares outstanding (basic)		2,364		2,324		2,364		2,322
Unvested restricted stock		25		60		25		60
Weighted average common shares outstanding (diluted)		2,389		2,384		2,389		2,382
Basic
Net income per share	$	0.41	$	0.31	$	1.21	$	0.35
Diluted
Net income per share	$	0.40	$	0.30	$	1.20	$	0.34

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Business Segments (Tables)

6 Months Ended

Jun. 30, 2020

Business Segments

Schedule of information regarding operations in business segment

	($000’s omitted except per share data)
	ATG						CPG						Consolidated
	Six Months Ended						Six Months Ended						Six Months Ended
	June 30,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
Revenues from unaffiliated customers	$	25,044		$	22,746		$	3,908		$	3,324		$	28,952		$	26,070
Cost of goods sold, inclusive of depreciation		(17,860)			(17,022)			(3,361)			(3,706)			(21,221)			(20,728)
Gross margin		7,184			5,724			547			(382)			7,731			5,342
Gross margin %		28.7	%		25.2	%		14.0	%		(11.5)	%		26.7	%		20.5	%
Selling, general and administrative		(3,145)			(3,019)			(871)			(1,283)			(4,016)			(4,302)
Interest		(84)			(41)			(7)			(16)			(91)			(57)
Total costs and expenses		(21,089)			(20,082)			(4,239)			(5,005)			(25,328)			(25,087)
Income/(loss) before income tax provision		3,955			2,664			(331)			(1,681)			3,624			983
Income tax provision (benefits)		830			463			(69)			(292)			761			171
Net income/(loss)	$	3,125		$	2,201		$	(262)		$	(1,389)		$	2,863		$	812
Capital expenditures	$	541		$	1,161		$	52		$	192		$	593		$	1,353

	($000’s omitted except per share data)
	ATG						CPG						Consolidated
	Three Months Ended						Three Months Ended						Three Months Ended
	June 30,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
Revenues from unaffiliated customers	$	11,230		$	12,151		$	2,274		$	1,916		$	13,504		$	14,067
Cost of goods sold, inclusive of depreciation		(8,494)			(8,555)			(1,991)			(2,243)			(10,485)			(10,798)
Gross margin		2,736			3,596			283			(327)			3,019			3,269
Gross margin %		24.4	%		29.6	%		12.4	%		(17.1)	%		22.4	%		23.2	%
Selling, general and administrative		(1,402)			(1,739)			(346)			(636)			(1,748)			(2,375)
Interest		(46)			(22)			(3)			(8)			(49)			(30)
Total costs and expenses		(9,942)			(10,316)			(2,340)			(2,887)			(12,282)			(13,203)
Income/(loss) before income tax provision		1,288			1,835			(66)			(971)			1,222			864
Income tax provision (benefits)		270			318			(13)			(168)			257			150
Net income/(loss)	$	1,018		$	1,517		$	(53)		$	(803)		$	965		$	714
Capital expenditures	$	128		$	562		$	52		$	149		$	180		$	711

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Business Description and Summary of Significant Accounting Policies - Estimated useful lives of depreciable properties (Details)	6 Months Ended
	Jun. 30, 2020
Buildings and improvements | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful lives of depreciable properties	5 years
Buildings and improvements | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful lives of depreciable properties	40 years
Machinery and equipment | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful lives of depreciable properties	5 years
Machinery and equipment | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful lives of depreciable properties	20 years
Tooling | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful lives of depreciable properties	3 years
Tooling | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful lives of depreciable properties	5 years

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Business Description and Summary of Significant Accounting Policies - Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Business Description and Summary of Significant Accounting Policies
Income tax expense	$ 257	$ 150	$ 761	$ 171
Income tax expense (% Change)			345.00%
Effective tax rate			21.00%	17.40%
Effective tax rate (% Change)			3.60%

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Business Description and Summary of Significant Accounting Policies - Additional Information (Details)	6 Months Ended		12 Months Ended
	Jun. 30, 2020 USD ($) Y	Jun. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for doubtful accounts	$ 156,000		$ 337,000
Warranty period	27 months
Warranty reserve	$ 287,000		420,000
Inventory reserve	1,569,000		1,437,000
Income taxes paid	42,000	$ 0
Interest paid	84,000	$ 57,000
Impairment of long-lived assets	$ 0		$ 0
Minimum
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Period inventory is expected to be used	2 years
Number of years of customer requirements | Y	1
Number of year's supply | Y	1

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Inventories - Summary of inventories (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Inventories
Raw material and common parts	$ 17,469,000	$ 14,707,000
Work-in-process	5,684,000	4,158,000
Finished goods	3,511,000	2,723,000
Inventory, Gross	26,664,000	21,588,000
Less inventory reserve	(1,569,000)	(1,437,000)
Total inventories	$ 25,095,000	$ 20,151,000

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Property, Plant and Equipment - Summary of property, plant and equipment (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Gross	$ 32,643	$ 32,050
Less accumulated depreciation and amortization	(20,044)	(19,333)
Total property, plant and equipment	12,599	12,717
Land
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Gross	7	7
Buildings
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Gross	11,158	11,017
Machinery and equipment
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Gross	21,036	20,695
Construction in progress
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Gross	$ 442	$ 331

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Property, Plant and Equipment - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Depreciation and amortization expense	$ 363,000	$ 289,000	$ 718,000	$ 563,000
Amortization expense	17,000	$ 21,000	35,000	$ 41,000
Property, plant and equipment, Gross	32,643,000		32,643,000		$ 32,050,000
ATG
Property, Plant and Equipment [Line Items]
Construction in progress	442,000		442,000		331,000
ATG | Construction in progress (CIP) machinery & equipment and self-constructed assets
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Gross	298,000		298,000		280,000
ATG | Construction in progress (CIP) computer equipment and software
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Gross	27,000		27,000		32,000
ATG | Construction in progress (CIP) building improvements
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Gross	$ 117,000		$ 117,000		$ 19,000

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Long-Term Debt - Summary of long term debt (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Debt Instrument
Long-term debt	$ 10,349	$ 6,019
Less current portion	(849)	(849)
Long-term debt, Noncurrent	9,500	5,170
Paycheck Protection Program Loan [Member]
Debt Instrument
Long-term debt	4,000	0
Line of credit payable to a financial institution; Interest rate option of bank prime or Libor plus 1.65% (1.579% as of June 30, 2020) (B) (C )
Debt Instrument
Long-term debt	3,750	3,000
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (1.573% as of June 30, 2020), monthly principal payments of $21,833 through 2021 with a balloon payment of $786,000 due December 1, 2021 (C)
Debt Instrument
Long-term debt	1,179	1,310
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (2.981130% as of June 30, 2020), monthly principal payments of $23,810 through December 1, 2021 (C)
Debt Instrument
Long-term debt	430	571
Equipment note obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.8259% - 1.835015% as of June 30, 2020) (D)
Debt Instrument
Long-term debt	602	670
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) (E)
Debt Instrument
Long-term debt	$ 388	$ 468

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Long-Term Debt - Summary of long term debt information (Details)	6 Months Ended
	Jun. 30, 2020 USD ($)
Paycheck Protection Program Loan [Member]
Debt Instrument
Percentage of fixed interest rate payable	1.00%
Line of credit payable to a financial institution; Interest rate option of bank prime or Libor plus 1.65% (1.579% as of June 30, 2020) (B) (C )
Debt Instrument
Spread on variable rate	1.65%
Percentage of fixed interest rate payable	1.579%
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (1.573% as of June 30, 2020), monthly principal payments of $21,833 through 2021 with a balloon payment of $786,000 due December 1, 2021 (C)
Debt Instrument
Percentage of fixed interest rate payable	1.573%
Monthly principal payments	$ 21,833
Balloon payment due December 1, 2021	$ 786,000
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (2.981130% as of June 30, 2020), monthly principal payments of $23,810 through December 1, 2021 (C)
Debt Instrument
Percentage of fixed interest rate payable	2.98113%
Monthly principal payments	$ 23,810
Equipment note obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.8259% - 1.835015% as of June 30, 2020) (D) | Minimum
Debt Instrument
Percentage of floating interest rate payable	1.8259%
Equipment note obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.8259% - 1.835015% as of June 30, 2020) (D) | Maximum
Debt Instrument
Percentage of floating interest rate payable	1.83501%
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) (E) | Minimum
Debt Instrument
Percentage of floating interest rate payable	1.82276%
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) (E) | Maximum
Debt Instrument
Percentage of floating interest rate payable	1.8693%
LIBOR | Line of credit payable to a financial institution; Interest rate option of bank prime or Libor plus 1.65% (1.579% as of June 30, 2020) (B) (C )
Debt Instrument
Spread on variable rate	1.65%
LIBOR | Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (1.573% as of June 30, 2020), monthly principal payments of $21,833 through 2021 with a balloon payment of $786,000 due December 1, 2021 (C)
Debt Instrument
Spread on variable rate	1.40%
LIBOR | Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (2.981130% as of June 30, 2020), monthly principal payments of $23,810 through December 1, 2021 (C)
Debt Instrument
Spread on variable rate	1.40%

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Long-Term Debt - Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Long-Term Debt
2020	$ 166	$ 331
2021	331	331
2022	316	316
2023	169	169
2024	97	97
Total principal and interest payments	1,079	1,244
Less amount representing interest	(89)	(106)
Present value of net minimum lease payments	990	1,138
Less current portion	(301)	(301)
Long-term principle payments	$ 689	$ 837

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Long-Term Debt - Additional Information (Details) - USD ($)		6 Months Ended
	Apr. 21, 2020	Jun. 30, 2020	Mar. 20, 2020	Mar. 19, 2020	Dec. 31, 2019
Debt Instrument
Loan term for equipment covered by loan		60 months
Lease line of credit		$ 1,000,000
Principal maturities of long-term debt for 2020		430,000
Principal maturities of long-term debt for 2021		4,635,000
Principal maturities of long-term debt for 2022		5,037,000
Principal maturities of long-term debt for 2023		154,000
Principal maturities of long-term debt for 2024		$ 93,000
Paycheck Protection Program Loan [Member]
Debt Instrument
Debt Instrument, Face Amount	$ 4,000,000
Debt Instrument, Term	2 years
Percentage of fixed interest rate payable		1.00%
Lease term for equipment covered by lease line of credit	2 years
Line of credit payable to a financial institution; Interest rate option of bank prime or Libor plus 1.65% (1.579% as of June 30, 2020) (B) (C )
Debt Instrument
Maximum borrowing capacity			$ 6,000,000	$ 4,000,000
Spread on variable rate		1.65%
Percentage of fixed interest rate payable		1.579%
Commitment fee on unused portion of line of credit		0.25%
Balance outstanding of line of credit		$ 3,750,000			$ 3,000,000
Equipment note obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.8259% - 1.835015% as of June 30, 2020) (D)
Debt Instrument
Maximum borrowing capacity		2,500,000
Balance outstanding of line of credit		$ 602,000			670,000
Loan term for equipment covered by loan		60 months
Payments for purchase of machinery and equipment		$ 721,000
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) (E)
Debt Instrument
Debt Instrument, Term		60 months
Lease line of credit		$ 1,000,000
Lease term for equipment covered by lease line of credit		60 months
Leases line of credit outstanding		$ 388,000			$ 468,000

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Shareholders' Equity - Summary of common shareholders' equity (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	$ 35,415	$ 33,532	$ 31,541	$ 31,513	$ 33,532	$ 31,513
Dividends declared ($0.16 per share)			(413)
Purchase of treasury shares		(100)	(21)	(128)
Stock based compensation	87	85	95	58
Net income	965	1,898	714	98	2,863	812
Balance	36,467	35,415	31,916	31,541	36,467	31,916
Retained earnings
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	22,382	20,484	18,886	18,788	20,484	18,788
Dividends declared ($0.16 per share)			(413)
Purchase of treasury shares		0	0	0
Stock based compensation	0	0	0	0
Net income	965	1,898	714	98
Balance	23,347	22,382	19,187	18,886	23,347	19,187
Accumulated Other Comprehensive Income (Loss)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	98	98	35	35	98	35
Dividends declared ($0.16 per share)			0
Purchase of treasury shares		0	0	0
Stock based compensation	0	0	0	0
Net income	0	0	0	0
Balance	98	98	35	35	98	35
Common Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	523	523	523	523	523	523
Dividends declared ($0.16 per share)			0
Purchase of treasury shares		0	0	0
Stock based compensation	0	0	0	0
Net income	0	0	0	0
Balance	523	523	523	523	523	523
Capital in excess of par value
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	14,391	14,358	14,264	14,250	14,358	14,250
Dividends declared ($0.16 per share)			0
Purchase of treasury shares		0	0	0
Stock based compensation	39	33	34	14
Net income	0	0	0	0
Balance	14,430	14,391	14,298	14,264	14,430	14,298
ESOT
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	(460)	(460)	(561)	(561)	(460)	(561)
Dividends declared ($0.16 per share)			0
Purchase of treasury shares		0	0	0
Stock based compensation	0	0	0	0
Net income	0	0	0	0
Balance	(460)	(460)	(561)	(561)	(460)	(561)
Treasury stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	(1,519)	(1,471)	(1,606)	(1,522)	(1,471)	(1,522)
Dividends declared ($0.16 per share)			0
Purchase of treasury shares		(100)	(21)	(128)
Stock based compensation	48	52	61	44
Net income	0	0	0	0
Balance	$ (1,471)	$ (1,519)	$ (1,566)	$ (1,606)	$ (1,471)	$ (1,566)

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Shareholders' Equity - Summary of common shareholders' equity - Parentheticals (Details)	Jun. 30, 2019 $ / shares
Shareholders' Equity
Dividends Payable, Amount Per Share	$ 0.16

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Shareholders' Equity - Restricted stock activity (Details)	6 Months Ended
	Jun. 30, 2020 shares
Restricted Share Activity:
Unvested at the beginning	54,416
Vested	29,166
Unvested at the end	25,250
Shares withheld to satisfy the tax obligations	9,543

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Shareholders' Equity - Calculation of earning per share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Shareholders' Equity
Net Income	$ 965	$ 1,898	$ 714	$ 98	$ 2,863	$ 812
Weighted average common shares outstanding (basic) (in shares)	2,364		2,324		2,364	2,322
Unvested restricted stock (in shares)	25		60		25	60
Weighted average common shares outstanding (diluted) (in shares)	2,389		2,384		2,389	2,382
Basic
Net Income per share (in dollars per share)	$ 0.41		$ 0.31		$ 1.21	$ 0.35
Diluted
Net income per share (in dollars per share)	$ 0.40		$ 0.30		$ 1.20	$ 0.34

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Shareholders' Equity - Share Repurchase Program (Details) - Share Repurchase Program - shares	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Equity, Class of Treasury Stock [Line Items]
Number of common shares authorized to be purchased	450,000
Number of shares purchased	360,615
Remaining number of shares authorized to be purchased	89,385
Shares purchased	360	4,502

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Commitments and Contingencies (Details) - USD ($)	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Loss Contingencies [Line Items]
Post retirement obligation	$ 1,663,000	$ 1,543,000
Kenneth Trbovich | Employment Agreement
Loss Contingencies [Line Items]
Post retirement obligation	$ 661,000	$ 583,000
Minimum age limit	65 years

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Litigation (Details) - Aero, Inc.	6 Months Ended
	Jun. 30, 2020 USD ($)
Litigation
Amount of alleged damages	$ 3,000,000
Amount of counter claim	3,191,000
Gain or loss on litigation	$ 0

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Related Party Transactions (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Related Party Transactions
Legal fees and disbursements	$ 37,000	$ 29,000	$ 132,000	$ 48,000
Accrued additional legal fees	$ 25,000	$ 22,000	$ 25,000	$ 22,000

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Business Segments - Summary of company's operations (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Segment Reporting Information [Line Items]
Revenues from unaffiliated customers	$ 13,504		$ 14,067		$ 28,952	$ 26,070
Cost of goods sold, inclusive of depreciation	(10,484)		(10,798)		(21,220)	(20,728)
Gross margin (loss)	3,020		3,269		7,732	5,342
Selling, general and administrative	(1,748)		(2,375)		(4,016)	(4,302)
Interest	(50)		(30)		(92)	(57)
Total costs and expenses	(1,798)		(2,405)		(4,108)	(4,359)
Income/(loss) before income tax provision	1,222		864		3,624	983
Income tax provision (benefits)	257		150		761	171
Net income/(loss)	965	$ 1,898	714	$ 98	2,863	812
Capital expenditures					593	1,140
Operating Segments
Segment Reporting Information [Line Items]
Revenues from unaffiliated customers	13,504		14,067		28,952	26,070
Cost of goods sold, inclusive of depreciation	(10,485)		(10,798)		(21,221)	(20,728)
Gross margin (loss)	$ 3,019		$ 3,269		$ 7,731	$ 5,342
Gross margin %	22.40%		23.20%		26.70%	20.50%
Selling, general and administrative	$ (1,748)		$ (2,375)		$ (4,016)	$ (4,302)
Interest	(49)		(30)		(91)	(57)
Total costs and expenses	(12,282)		(13,203)		(25,328)	(25,087)
Income/(loss) before income tax provision	1,222		864		3,624	983
Income tax provision (benefits)	257		150		761	171
Net income/(loss)	965		714		2,863	812
Capital expenditures	180		711		593	1,353
Operating Segments | ATG
Segment Reporting Information [Line Items]
Revenues from unaffiliated customers	11,230		12,151		25,044	22,746
Cost of goods sold, inclusive of depreciation	(8,494)		(8,555)		(17,860)	(17,022)
Gross margin (loss)	$ 2,736		$ 3,596		$ 7,184	$ 5,724
Gross margin %	24.40%		29.60%		28.70%	25.20%
Selling, general and administrative	$ (1,402)		$ (1,739)		$ (3,145)	$ (3,019)
Interest	(46)		(22)		(84)	(41)
Total costs and expenses	(9,942)		(10,316)		(21,089)	(20,082)
Income/(loss) before income tax provision	1,288		1,835		3,955	2,664
Income tax provision (benefits)	270		318		830	463
Net income/(loss)	1,018		1,517		3,125	2,201
Capital expenditures	128		562		541	1,161
Operating Segments | CPG
Segment Reporting Information [Line Items]
Revenues from unaffiliated customers	2,274		1,916		3,908	3,324
Cost of goods sold, inclusive of depreciation	(1,991)		(2,243)		(3,361)	(3,706)
Gross margin (loss)	$ 283		$ (327)		$ 547	$ (382)
Gross margin %	12.40%		(17.10%)		14.00%	(11.50%)
Selling, general and administrative	$ (346)		$ (636)		$ (871)	$ (1,283)
Interest	(3)		(8)		(7)	(16)
Total costs and expenses	(2,340)		(2,887)		(4,239)	(5,005)
Income/(loss) before income tax provision	(66)		(971)		(331)	(1,681)
Income tax provision (benefits)	(13)		(168)		(69)	(292)
Net income/(loss)	(53)		(803)		(262)	(1,389)
Capital expenditures	$ 52		$ 149		$ 52	$ 192

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Business Segments - Additional Information (Details)	6 Months Ended
	Jun. 30, 2020 USD ($) segment	Dec. 31, 2019 USD ($)
Segment Reporting Information [Line Items]
Number of operating segments | segment	2
Total identifiable assets	$ 56,180,000	$ 49,470,000
Operating Segments
Segment Reporting Information [Line Items]
Total identifiable assets	56,180,000	49,470,000
Operating Segments | ATG
Segment Reporting Information [Line Items]
Total identifiable assets	46,208,000	39,980,000
Operating Segments | CPG
Segment Reporting Information [Line Items]
Total identifiable assets	$ 9,972,000	$ 9,490,000