On January 11, 2022, the Company executed an amendment, which extended the line of credit (“LOC”) availability period from December 31, 2022 to December 31, 2023. The amended agreement suspended the Debt Service Coverage Ratio loan covenant up through and including the third quarter of 2022. A Quarterly Minimum Cash Flow measurement loan covenant replaced the Debt Service Coverage Ratio loan covenant. Minimum Cash Flow means net income, plus depreciation, depletion, and amortization expense, plus interest expense, plus non-cash expense related to the Servotronics, Inc. Employee Stock Ownership Plan, plus non-cash stock and stock option transactions. Also, the amended agreement required the Company to maintain a minimum liquidity, defined as cash on hand plus LOC availability, of at least $9,000,000.

As disclosed in the filing of our 2022 third quarter 10-Q, at that time the Company anticipated that we would fail to meet the Debt Service Coverage Ratio loan covenant up through and including the fourth quarter of 2022. As of December 31, 2022, the Company was not in compliance with this covenant under our loan agreement and, as a result, the availability of the LOC was temporarily frozen.

On March 30, 2023, the Company executed an amendment to the loan agreement (the “Amendment”), which provides a waiver of Debt Service Coverage Ratio defaults and other potential defaults at December 31, 2022 and through December 31, 2023, the expiration date of the agreement.

The Amendment also provides the following stipulations. The LOC loan was immediately converted to a borrowing base line of credit utilizing eligible accounts receivable (the “Borrowing Base”), with a maximum availability of the lesser of $5,000,000 or the Borrowing Base, which amounted to $6,400,000 as of the amendment date. As of June 29, 2023, the maximum availability under the Borrowing Base LOC will be reduced to the lesser of $3,900,000 or the Borrowing Base; and then as of August 1, 2023, it will be further reduced to the lesser of $1,000,000 or the Borrowing Base. The amended Borrowing Base LOC loan is secured by all equipment, receivables, inventory and real property of the Company and its wholly owned subsidiary, The Ontario Knife Company, with the exception of certain equipment that was purchased from proceeds of government grants. Interest on the Borrowing Base LOC is the Bloomberg Short-Term Bank Yield (“BSBY”) plus 4.00 percentage points, amounting to 8.88% as of March 30, 2023.

Pursuant to the Amendment, the Company paid in full the outstanding balance on our equipment loans, approximately $501,000 as of December 31, 2022. Additionally, the Company advanced $500,000 on the Borrowing Base LOC loan for a pledged deposit account with our lender to be used solely to pay interest.

The Company intends to refinance the LOC loan with a different lender by June 29, 2023. Failure to deliver a commitment letter to our current lender by June 1, 2023 and to refinance the LOC loan by June 29, 2023 will result in the imposition of additional fees to our current lender of up to $300,000.

Ongoing Liquidity Considerations

The Company incurred consolidated operating losses from continuing operations for the years ended December 31, 2022 and 2021. The losses incurred were predominantly driven by our decision to maintain our experienced and knowledgeable workforce during the pandemic years and hire ahead of the expected increased customer demand at the ATG. During 2021, the Company’s operating losses were funded by PPP loans and Employee Retention Credits provided by the U.S. government, which were not available in 2022. The Company’s operating losses decreased year over year by 53%, demonstrating positive momentum. The Company’s total shareholders’ equity was approximately $35,112,000 as of December 31, 2022. Also, as of that date, the Company had working capital excluding cash of approximately $23,041,000 and only $501,000 of bank financing.

The ATG has experienced growing customer demand since the middle of 2022, causing an increase in inventory purchases and the resulting usage of cash. This was further exacerbated by the hiring and training of staff to support increasing production in 2023. The temporary freezing of availability on our LOC raised initial doubt about our ability to continue as a going concern until the Company amended the loan agreement on March 30, 2023, alleviating that doubt. We believe that our operating cash flow and availability of our amended Borrowing Base LOC provides us with sufficient liquidity in the near term. Additionally, the Company is actively pursuing an alternate credit facility with a different lender to replace the Borrowing Base LOC loan from our current lender by June 29, 2023. We believe that the strength of our asset base and increasing customer demand make our ability to successfully refinance our LOC probable, providing the Company with sufficient liquidity for at least the next 12 months.

B.)

The Company had 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 was approximately $491,000 outstanding at December 31, 2022 and $712,000 outstanding at December 31, 2021.

C.)

The Company had 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 $10,000 outstanding at December 31, 2022 and $64,000 at December 31, 2021.

Principal maturities of long-term debt are as follows: 2023 - $501,000. Remaining principal payments for the capital note and capital lease obligations for each of the next five years:



	Year ending December 31, ($000's omitted)

	2023		532
Total principal and interest payments			532
Less amount representing interest			(31)
Present value of net minimum lease payments			501
Less current portion			(501)
Long term principle payments		$	—