10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2023

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 ☒      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 ☒      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 ☒ Smaller reporting company ☒ 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 ☒

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 April 26, 2023
Common Stock, $.20 par value	2,525,313

INDEX

		Page No.
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	a)     Condensed Consolidated Balance Sheets, March 31, 2023 and December 31, 2022 (Audited)	3
	b)     Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022	4
	c)     Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2023 and 2022	5
	d)     Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	6
	e)     Notes to Condensed Consolidated Financial Statements	7
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	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	25
Item 6.	Exhibits	25
Forward-Looking Statement		25
Signatures		26

- 2 -

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	March 31,		December 31,
	2023		2022
	(Unaudited)		(Audited)
Current assets:
Cash	$	671	$	4,004
Cash, restricted		500		—
Accounts receivable, net		10,746		9,469
Inventories, net		20,007		19,044
Prepaid income taxes		138		138
Other current assets		1,619		597
Total current assets		33,681		33,252
Property, plant and equipment, net		10,790		10,656
Deferred income taxes		1,067		1,072
Other non-current assets		311		314
Total Assets	$	45,849	$	45,294
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	939	$	—
Current portion of equipment financing and capital leases		—		501
Current portion of postretirement benefits		87		87
Accounts payable		4,085		3,113
Accrued employee compensation and benefits costs		1,377		1,163
Accrued warranty		594		581
Other accrued liabilities		1,150		762
Total current liabilities		8,232		6,207
Long-term debt		—		—
Post retirement obligation		3,998		3,975
Shareholders’ equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,629,052 shares; outstanding 2,484,042 (2,483,318 - 2022) shares		523		523
Capital in excess of par value		14,573		14,556
Retained earnings		22,194		23,741
Accumulated other comprehensive loss		(2,324)		(2,337)
Employee stock ownership trust commitment		(157)		(157)
Treasury stock, at cost 103,739 (104,464 - 2022) shares		(1,190)		(1,214)
Total shareholders’ equity		33,619		35,112
Total Liabilities and Shareholders’ Equity	$	45,849	$	45,294

See notes to condensed consolidated financial statements

- 3 -

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($000’s omitted except per share data)

(Unaudited)

	Three Months Ended
	March 31,
	2023		2022
Revenue	$	10,802	$	11,168
Costs and expenses:
Cost of goods sold, inclusive of depreciation and amortization		9,887		8,211
Gross profit		915		2,957
Operating expenses:
Selling, general and administrative		2,826		2,501
Total operating expenses		2,826		2,501
Operating (loss)/income		(1,911)		456
Other (expense)/income:
Interest expense		(53)		(70)
Gain on sale of equipment		—		26
Total other expense, net		(53)		(44)
(Loss)/income before income taxes		(1,964)		412
Income tax benefit/(provision)		417		(87)
Net (loss)/income	$	(1,547)	$	325
Income per share:
Basic
Net income per share	$	(0.63)	$	0.13
Diluted
Net income per share	$	(0.63)	$	0.13

See notes to condensed consolidated financial statements

- 4 -

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

($000’s omitted)

(Unaudited)

	Three Months Ended
	March 31,
	2023		2022
Net (Loss)/Income	$	(1,547)	$	325
Other comprehensive (loss)/income items:
Actuarial gains		16		27
Income tax expense on actuarial losses		(3)		(5)
Other comprehensive income:
Retirement benefits adjustments, net of income taxes		13		22
Total comprehensive (loss)/income	$	(1,534)	$	347

See notes to condensed consolidated financial statements

- 5 -

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($000’s omitted)

(Unaudited)

	Three Months Ended
	March 31,
	2023		2022
Cash flows related to operating activities:
Net (Loss)Income	$	(1,547)	$	325
Adjustments to reconcile net (loss) income to net cash used by operating activities:
Depreciation and amortization		306		313
Gain on sale of equipment		—		(26)
Stock based compensation		55		25
(Decrease)/increase in allowance for credit losses		(10)		65
(Decrease)/increase in inventory reserve		(175)		168
Increase in warranty reserve		13		—
Deferred income taxes		2		—
Change in assets and liabilities:
Accounts receivable		(1,267)		(2,171)
Inventories		(788)		(222)
Prepaid income taxes		—		199
Other current assets		(1,022)		(783)
Accounts payable		972		1,669
Accrued employee compensation and benefit costs		200		(72)
Post retirement obligation		39		34
Other accrued liabilities		388		(68)
Accrued income taxes		—		—
Net cash used by operating activities		(2,834)		(544)
Cash flows related to investing activities:
Capital expenditures - property, plant and equipment		(437)		(115)
Proceeds from sale of assets		—		38
Net cash used by investing activities		(437)		(77)
Cash flows related to financing activities:
Principal payments on equipment financing lease/note obligations		(501)		(70)
Proceeds from line of credit, net		939		—
Net cash provided (used) by financing activities		438		(70)
Net decrease in cash and restricted cash		(2,833)		(691)
Cash and restricted cash at beginning of period		4,004		9,546
Cash and restricted cash at end of period	$	1,171	$	8,855

See notes to condensed consolidated financial statements

- 6 -

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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The consolidated financial statements should be read in conjunction with the 2022 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. The company operates through two primary segments: the Advanced Technology Group (ATG) and the Consumer Products Group (CPG).

The Company was incorporated in New York in 1959. In 1972, the Company was merged into a wholly-owned subsidiary organized under the laws of the State of Delaware, thereby changing the Company’s state of incorporation from New York to Delaware.

The Company’s shares currently trade on the New York Stock Exchange (NYSE American) under the symbol SVT.

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 and Restricted Cash

The following table provides a reconciliation of cash and restricted cash to the amounts in the statement of cash flow in thousands.

	March 31,		December 31,
	2023		2022
	($000's omitted)
Cash	$	671	$	4,004
Restricted cash		500		—
Total Cash and restricted cash	$	1,171	$	4,004

The Company considers cash to include all currency and coin owned by the Company as well as all deposits in the bank including checking accounts and savings accounts. The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its Amendment No.7 and Waiver of Agreements (the “Amendment”) effective March 30, 2023 of approximately $500,000 at March 31, 2023 ($0 at December 31, 2022). See note 5 for further discussion.

- 7 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 credit losses. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for credit losses based on history of past write-offs, collections, and current credit conditions. The allowance for credit losses amounted to approximately $125,000 and $135,000 as of March 31, 2023 and December 31, 2022, respectively. The Company does not accrue interest on past due receivables.

The Company evaluated the ASU related to Current Expected Credit Losses (“CECL”) and determined that the pronouncement does not have a material effect on the financial position, results of operations or cash flows of the Company.

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. Shipping and handling activities that occur after the customer obtains control of the promised goods are considered fulfillment activities.

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 March 31, 2023, and December 31, 2022 under the guidance of ASC 460 the Company has recorded a warranty reserve of approximately $594,000 and $581,000, respectively. Revenue is recognized on repair returns, covered under a customer contract, at the contractual price upon shipment to the customer.

- 8 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 determined to be slow moving are applied to the gross value of the inventory through a reserve of approximately $1,083,000 and $1,258,000 as of March 31, 2023 and December 31, 2022, 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 two years of customer requirements. Also, in order to maintain a reasonable and/or agreed to lead time or minimum stocking requirements, certain larger quantities of other product support items may have to be purchased and may result in over one year’s supply. The 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 ROU (Right of Use) assets. 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

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, Texas, California and Connecticut state income tax returns and a separate Arkansas state income tax return.

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 condensed consolidated balance sheets as of March 31, 2023 or December 31, 2022, and did not recognize any interest and/or penalties in its condensed consolidated statements of operations during the periods ended March 31, 2023 and March 31, 2022. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of March 31, 2023 and December 31, 2022. The 2019 through 2022 federal and state tax returns remain subject to examination.

Supplemental Cash Flow Information

There were no income taxes paid or refunded for the three-month period ended March 31, 2023, there were income tax refunds received of approximately $113,000 for the same three-month period ended March 31, 2022. Interest paid amounted to approximately $5,000 and $31,000, during the three months ended March 31, 2023 and March 31, 2022, respectively.

- 9 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, the Company 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 as of March 31, 2023 and December 31, 2022.

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 condensed 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 with classifications adopted in the current period.

Effective January1, 2023 the ATG research and development and certain insurance expenditures of approximately $395,000 are reflected in selling, general and administrative operating expenses.  Accordingly, approximately $319,000 was reclassified for the same period in 2022. There was no impact to the condensed consolidated statement of operations due to the reclassification.

Research and Development Costs

Research and development costs are expensed as incurred and are included in the selling, general and administrative on the Condensed Consolidated Statements of Operations.

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.

Recent Accounting Pronouncements Adopted

Effective January 1, 2023 the Company adopted the Accounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, issued by the Financial Accounting Standards Board (“FASB”) which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. The ASU requires financial assets measured at amortized cost (including

- 10 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

loans, trade receivables and held-to-maturity debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected to occur over the remaining life of the asset, rather than incurred losses. The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the statement of income as the amounts expected to be collected change.

The Company evaluated the ASU related to Current Expected Credit Losses (“CECL”) and determined that the pronouncement does not have a material effect on the financial position, results of operations or cash flows of the Company.  

There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, that are of significance, or potential significance, to the Company.

3.           Inventories

	March 31,		December 31,
	2023		2022
	($000’s omitted)
Raw material and common parts	$	15,239	$	14,534
Work-in-process		3,490		3,258
Finished goods		2,361		2,510
		21,090		20,302
Less inventory reserve		(1,083)		(1,258)
Total inventories	$	20,007	$	19,044

4.           Property, Plant and Equipment

	March 31,		December 31,
	2023		2022
	($000’s omitted)
Land	$	7	$	7
Buildings		11,886		11,843
Machinery, equipment and tooling		21,216		20,757
Construction in progress		1,023		1,087
		34,132		33,694
Less accumulated depreciation and amortization		(23,342)		(23,038)
Total property, plant and equipment	$	10,790	$	10,656

Depreciation and amortization expense amounted to approximately $306,000 and $313,000 for each of the three months ended March 31, 2023 and March 31, 2022, respectively. Depreciation expense amounted to approximately $298,000 and $305,000 for the three months ended March 31, 2023 and March 31, 2022, respectively. Amortization expense primarily related to capital leases amounted to approximately $8,000 for each of the three months ended March 31, 2023 and March 31, 2022.

The Company’s Right of Use (“ROU”) assets included in machinery, equipment and tooling had a net book value of approximately $178,000 as of March 31, 2023 ($185,000- December 31, 2022).

As of March 31, 2023, there is approximately $1,023,000 ($1,087,000 – December 31, 2022) of construction in progress (CIP) included in property, plant and equipment all of which is related to capital projects.  There is approximately $384,000 in CIP for the machinery and equipment and approximately $639,000 for building improvements at the Advance Technology Group.

- 11 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5.           Long-Term Debt

	March 31,		December 31,
	2023		2022
	($000’s omitted)
Line of credit payable to a financial institution; Interest rate is BSBY plus 4.0 percentage points (Interest Rate 8.88% as of March 31, 2023)(A)	$	939	$	—
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 1.7955% - 1.8350% as of March 31, 2023)(B)		—		491
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 1.8227% - 1.8690% at time of funding)©		—		10
		939		501
Less current portion		(939)		(501)
Long-term debt	$	—	$	—

A.) 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. Accordingly, as of December 31, 2022, the Company was not in compliance with this covenant under its loan agreement. Subsequently, on March 13, 2023 the availability of the Line of Credit (“LOC”) was temporarily frozen.

On March 30, 2023, the Company executed 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 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 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 its equipment loans, approximately $501,000 as of December 31, 2022. Additionally, the Company advanced $500,000 on the Borrowing Base LOC for a pledged deposit account with its lender to be used solely to pay interest.

The Company intends to refinance the LOC with a different lender by June 29, 2023. Failure to deliver a commitment letter to its 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 its current lender of up to $300,000.

There was approximately $939,000 outstanding at March 31, 2023 and $0 balance outstanding at December 31, 2022.

We incurred consolidated operating losses for the quarter ended March 31, 2023 and for the year ended December 31, 2022. The losses incurred were predominately driven by our decision to maintain our experienced and knowledgeable workforce during the pandemic years and hire ahead of expected increased customer demand at the ATG.

- 12 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 we amended our 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, we are 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 us with sufficient liquidity for at least the next 12 months. We had total shareholders’ equity of approximately $33,619,000 as of March 31, 2023. Also as of that date, we had working capital excluding cash, of approximately $24,278,000.

B.) The Company established 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 was 60 months. Monthly payments were fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There was no outstanding balance at March 31, 2023 and $491,000 balance outstanding at December 31, 2022.

C.) 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 was 60 months. Monthly payments were fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There was no outstanding balance at March 31, 2023 and $10,000 at December 31, 2022.

6.            Postretirement Benefit Plan

The Company provides certain postretirement health and life insurance benefits for two former executives of the Company (the Plan). Upon ceasing employment with the Company, the Company is paying the annual cost of health insurance coverage and providing life insurance at the same level of coverage provided to the former employee at the time of termination of employment by the Company. The Plan also provides a benefit to reimburse the participants for certain out-of-pocket medical or health related expenses. The participant’s insurance benefits cease upon their death.. The Plan is unfunded and the actuarially determined future accumulated postretirement benefit obligation at March 31, 2023 and December 31, 2022 was approximately $4,085,000 and $4,062,000, respectively and has been recognized in Post Retirement Obligation in the accompanying condensed consolidated balance sheets. The components of the Plan were not material for the three-month period ended March 31, 2023 and March 31, 2022 respectively.

Benefit cost for the three months ended March 31, 2023 and March 31, 2022 totaled $65,000 and $69,000, respectively.

- 13 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.           Shareholders’ Equity

	Three-month Period Ended March 31, 2023
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Loss		Common Stock		par value		ESOT		stock		equity
December 31, 2022	$	23,741	$	(2,337)	$	523	$	14,556	$	(157)	$	(1,214)	$	35,112
Retirement benefits adjustment		—		13		—		—		—		—		13
Stock based compensation		—		—		—		17		—		24		41
Net Loss		(1,547)		—		—		—		—		—		(1,547)
March 31, 2023	$	22,194	$	(2,324)	$	523	$	14,573	$	(157)	$	(1,190)	$	33,619

	Three-month Period Ended March 31, 2022
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		Common Stock		par value		ESOT		stock		equity
December 31, 2021	$	25,858	$	(3,908)	$	523	$	14,500	$	(258)	$	(1,349)	$	35,366
Retirement benefits adjustment		—		22		—		—		—		—		22
Stock based compensation		—		—		—		2		—		23		25
Net Income		325		—		—		—		—		—		325
March 31, 2022	$	26,183	$	(3,886)	$	523	$	14,502	$	(258)	$	(1,326)	$	35,738

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 March 31, 2023, the Company has purchased 360,615 shares and there remains 89,385 shares available to purchase under this program. There were no shares purchased by the Company during the three-month period ended March 31, 2023 and March 31, 2022.

The Company’s director compensation policy provides that non-employee directors receive a portion of their annual retainer in the form of restricted stock under the Company’s 2022 Equity Incentive Plan. These shares vest quarterly over a twelve-month service period, have voting rights and accrue dividends that are paid upon vesting. The aggregate amount of expense to the Company, measured based on the grant date fair value, is recognized over the requisite service period. An aggregate of 11,345 restricted shares were issued on August 15, 2022 with a grant date fair value of $125,000. An additional aggregate of 725 restricted shares were issued on February 16, 2023 with a grant date fair value of $7,808.

Included in the three-month period ended March 31, 2023 and March 31, 2022 is approximately $55,000 and $25,000, respectively, of stock-based compensation expense related to the restrictive share awards. The Company has approximately $177,000 of stock-based compensation expense related to unvested shares to be recognized over the requisite service period.

- 14 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

		Weighted Average
		Grant Date Fair
	Shares	Value
Restricted Share Activity:
Unvested at December 31, 2022	27,010	$	11.09
Granted in 2023	725	$	10.77
Vested in 2023	4,978	$	11.03
Unvested at March 31, 2023	22,757	$	11.09

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of 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 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
	March 31,
	2023		2022
	($000’s omitted except per share data)
Net (Loss) Income	$	(1,547)	$	325
Weighted average common shares outstanding (basic)		2,460		2,432
Unvested restricted stock		24		3
Weighted average common shares outstanding (diluted)		2,484		2,435
Basic
Net (loss) income per share	$	(0.63)	$	0.13
Diluted
Net (loss) income per share	$	(0.63)	$	0.13

8.           Litigation

In the course of its business, the Company is subject to a variety of claims and lawsuits that are inherently subject to many uncertainties regarding the possibility of a loss to the Company. Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management, after consulting with legal counsel, about future events and can rely heavily on estimates and assumptions. The Company carries liability insurance, subject to certain deductibles and policy limits, for such claims as they arise and may from time to time establish reserves for litigation that is considered probable of a loss. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

- 15 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On June 7, 2021, a Summons and Complaint was filed by an employee in the Supreme Court of the State of New York, County of Erie, against Servotronics, Inc., the Servotronics Board of Directors, The Ontario Knife Company and Kenneth D. Trbovich (collectively, the “Defendants”). The Complaint alleges certain violations under the New York Human Rights Law by the Defendants relating to the employee’s employment by the Company as well as intentional and negligent infliction of emotional distress. The complaint also alleges certain purported derivative causes of action against all Defendants, including breach of fiduciary duties, fraud and corporate waste. The complaint seeks monetary damages in an amount not less than $5,000,000 with respect to the direct causes of action and equitable relief with respect to the purported derivative causes of action. The Defendants filed a motion to dismiss the Complaint on August 6, 2021. On January 13, 2022, the Defendants’ motion to dismiss was granted, in part, and denied, in part. This litigation is still in its earliest stages. The Company is insured for such matters in the amount of $3 million with a retention of $250,000. Additionally, there is an excess coverage policy for $3 million that considers the payment of the earlier insurance policy as the $1 million retention. Based on the information known by the Company as of the date of this filing, the Company does not consider the risk of loss to be probable and is unable to reasonably or accurately estimate the likelihood and amount of any liability that may be realized as a result of this litigation. Accordingly, no loss has been recognized in the accompanying financials statements related to this litigation. The Company intends to vigorously defend against this litigation.

On December 21, 2021, the Company’s former Chief Executive Officer (“Former CEO”) delivered his Notice of Termination and alleged that the Company breached the terms of the Employment Agreement between the Company and the Former CEO by, among others, placing the Former CEO on paid administrative leave pending an internal investigation in June 2021. On December 22, 2021, the Board of Directors accepted the Former CEO’s resignation from the Company but rejected his request to treat his resignation as resignation for good reason under Paragraph 10 of his Employment Agreement. The Board also determined, based on the findings of its investigation, that the Former CEO committed willful malfeasance in violation of his Employment Agreement, and that such willful malfeasance would have justified termination of employment pursuant to Paragraph 9 of the Employment Agreement, but for his earlier resignation. The Former CEO claims that he is entitled to a severance payment equal to 2.99 times his average annual compensation as set forth in the Employment Agreement, plus the reimbursement of certain expenses and the value of any lost benefits. As noted above, the Board of Directors rejected the Former CEO’s claim that the Company breached the Employment Agreement. Accordingly, the Company is classifying the Former CEO’s termination as a voluntary resignation for which no severance is due. The Employment Agreement provides that disputes arising thereunder shall be settled by arbitration. To date, neither party has commenced an arbitration proceeding with respect to these matters. Based on the information known by the Company as of the date of this filing, if a claim is ultimately asserted, the Company does not consider the risk of loss to be probable and is unable to reasonably or accurately estimate the likelihood and amount of any liability that may be realized with respect to this matter.

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

9.         Business Segments

The Company operates in two business segments, Advanced Technology Group (“ATG”) and Consumer Products Group (“CPG”). The Company’s reportable segments are strategic business units that offer different products and services. The segments are composed of separate corporations and are managed separately. Operations in ATG 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.

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

- 16 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	($000’s omitted except per share data)
	ATG						CPG						Consolidated
	Three Months Ended						Three Months Ended						Three Months Ended
	March 31,						March 31,						March 31,
	2023			2022			2023			2022			2023			2022
Revenues from unaffiliated customers	$	9,060		$	9,168		$	1,742		$	2,000		$	10,802		$	11,168
Cost of goods sold, inclusive of depreciation		(8,076)			(6,496)			(1,811)			(1,715)			(9,887)		$	(8,211)
Gross profit (loss)		984			2,672			(69)			285			915			2,957
Gross margin %		10.9	%		29.1	%		(4.0)	%		14.3	%		8.5	%		26.5	%
Operating expenses:
Selling, general and administrative		(2,175)			(2,093)			(651)			(408)			(2,826)			(2,501)
Total operating costs and expenses		(10,251)			(8,589)			(2,462)			(2,123)			(12,713)			(10,712)
Operating (loss)/income		(1,191)			579			(720)			(123)			(1,911)			456
Other (expenses)/income:
Interest expense		(53)			(70)			—			—			(53)			(70)
Gain on sale of equipment		—			26			—			—			—			26
Total other expenses, net		(53)			(44)			—			—			(53)			(44)
(Loss)/income before income tax provision		(1,244)			535			(720)			(123)			(1,964)			412
Income tax benefit/(provision)		264			(113)			153			26			417			(87)
Net (loss)/income	$	(980)		$	422		$	(567)		$	(97)		$	(1,547)		$	325
Total assets	$	36,096		$	42,382		$	9,753		$	9,546		$	45,849		$	51,928
Capital expenditures, net	$	302		$	77		$	135		$	—		$	437		$	77
Foreign derived sales	$	2,023		$	2,962		$	63		$	37		$	2,086		$	2,999

- 17 -

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

The aviation and aerospace industries as well as markets for the our consumer products continually face evolving challenges on a global basis. Our operations can be affected by the trends of the economy, including interest rates, income tax laws, government regulation, legislation, and other factors. In addition, uncertainties in today’s global economy, competition from expanding manufacturing capabilities and technical sophistication of low-cost developing countries and emerging markets, currency policies in relation to the U.S. dollar of some major foreign exporting countries, the effect of terrorism, difficulty in predicting defense and other government appropriations, the vitality of the commercial aviation industry and its ability to purchase new aircraft, the willingness and ability of our customers to fund long-term purchase programs, volatile market demand and the continued market acceptance of our advanced technology and cutlery products make it difficult to predict the impact on future financial results.

Both the ATG and CPG markets are sensitive to domestic and foreign economic conditions and policies, which may create volatility in operating results from period to period. For example, the airline industry is sensitive to fuel price increases and economic conditions. These factors directly impact the demand for aircraft production as well as the amount of repair and overhaul required on in-service aircraft.

Consistent with the evolving requirements of the aerospace industry, companies are increasingly being requested to operate under long-term agreements with their customers on the basis of fixed prices, targeted year to year price reductions and/or year to year price adjustments predicated on mutually agreed indices and/or a combination of some or all of the above described pricing arrangements and/or otherwise. Therefore, productivity improvements and cost containment strategies are continuously sought within our concept of continuous improvement. Our products are labor intensive and as such productivity improvements are expected to have positive effects on our operating results. However, increased costs for raw material, purchased parts and/or labor have the reverse effect.

If any adverse economic events reduce the number of airliners and/or aircraft being produced by our relevant prime contractors, the negative effects of that reduction will in turn flow down through the supply chain. Also, certain major manufacturers have successfully imposed extended payment terms to their suppliers. At times, these extended payment terms are not available to us when purchasing raw material such as aluminum, magnetic material, steel and/or other product support items and services. If our customers delay their payments until after the extended due date or fail to pay, it could adversely impact our operating results and cash flow. During 2022 and continuing into the first quarter ending March 31, 2023, inflation negatively impacted our input costs, primarily for labor and materials. Supply chain disruptions, labor shortages, and global inflation remain persistent.

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 our customers’ final delivery determinations based on changes in the global economy and other factors.

During the three months ended March 31, 2023 and March 31, 2022, approximately 84% and 82%, respectively, of our consolidated revenues were derived from the ATG sale of product to a small base of customers. During the three months ended March 31, 2023 and March 31, 2022, approximately 16% and 18% of our consolidated revenues respectively, were derived from the CPG sale of product to a large base of retail customers. Our consolidated revenues decreased approximately $366,000, or 3%, during the three-month period ended March 31, 2023 when compared to the same period in 2022. This is due to a decrease at the ATG of approximately $108,000 and a decrease at the CPG of approximately $258,000.

See also Note 9, Business Segments, of the accompanying condensed consolidated financial statements for information concerning business segment operating results.

Business Environment

We continue to experience supply chain challenges, as well as cost inflation for parts and components and expect inflationary and supply chain constraints to continue throughout 2023. Our suppliers are also subject to all the pressures and

- 18 -

volatility being generated by the current global economic conditions. Any interruption of the continuous flow of material and product parts that are required for the manufacture of our products could adversely impact our ability to meet customers’ delivery requirements.

Our strategy continues to emphasize growth, maximizing our operations and resources requiring continued dedicated performances from our key and other personnel. In the our key markets and business arenas there is substantial competition for the services of the highest performing individuals. Any unplanned replacement of such personnel may require the hiring of new personnel on an expedited basis and may temporarily interrupt our operations and efforts for continuous improvement. We intend to strengthen and expand our core competencies, while improving our margins and earnings by controlling costs in all aspects of our business.

On March 30, 2023, we announced that our Board of Directors has authorized the review of strategic alternatives for the CPG with a goal of enhancing shareholder value. This review was authorized by the Board on February 28, 2023 and we have engaged a financial advisor to manage the process. CPG does not meet the criteria for classification as a discontinued operation as of March 31, 2023. As of April 18, 2023, the CPG segment is being actively marketed to potential buyers, however, there is no set timetable for the strategic review process and there can be no assurance that such review will result in any transaction or other alternative.

Results of Operations

The following table compares the Company’s condensed consolidated statements of operations data for the three months ended March 31, 2023 and 2022:

	($000’s omitted except per share data)
	Three Months Ended					Three Months Ended
	March 31,					March 31,
	2023					2022					2023 vs 2022
				% of					% of		Dollar		% Favorable/
	Dollars			Sales		Dollars			Sales		Change		(Unfavorable)
Revenues:
Advanced Technology	$	9,060		83.9	%	$	9,168		82.1	%	$	(108)	(1.2)	%
Consumer Products		1,742		16.1	%		2,000		17.9	%		(258)	(12.9)	%
		10,802		100.0	%		11,168		100.0	%		(366)	(3.3)	%
Cost of goods sold, inclusive of depreciation and amortization		(9,887)		91.5	%		(8,211)		73.5	%		(1,676)	(20.4)	%
Gross profit		915		8.5	%		2,957		26.5	%		(2,042)	(69.1)	%
Gross margin %		8.5	%				23.6	%
Operating expenses:
Selling, general and administrative		(2,826)		26.2	%		(2,501)		22.4	%		(325)	(13.0)	%
Total operating costs and expenses		(12,713)		117.7	%		(10,712)		95.9	%		(2,001)	(18.7)	%
Operating (loss)/income		(1,911)		(17.7)	%		456		4.1	%		(2,367)	(519.1)	%
Interest expense		(53)		(0.5)	%		(70)		(0.6)	%		17	24.3	%
Gain on sale of equipment		—		0.0	%		26		0.2	%		(26)	(100.0)	%
Total other expense, net		(53)		(0.5)	%		(44)		(0.4)	%		(9)	(20.5)	%
(Loss)/income before income tax provision		(1,964)		(18.2)	%		412		3.7	%		(2,376)	(576.7)	%
Income tax benefit		417		3.9	%		87		(0.8)	%		330	(379.3)	%
Net (loss)/income	$	(1,547)		(14.3)	%	$	325		2.9	%	$	(1,872)	(576)	%

- 19 -

Revenue and Gross Profit (Loss)

	ATG						CPG						Servotronics, Inc.
	Three months ended						Three months ended						Three months ended
	March 31,						March 31,						March 31,
($000’s omitted)	2023			2022			2023			2022			2023			2022
Revenues	$	9,060		$	9,168		$	1,742		$	2,000		$	10,802		$	11,168
Cost of goods sold		(8,076)			(6,496)			(1,811)			(1,715)			(9,887)			(8,211)
Gross profit (loss)	$	984		$	2,672		$	(69)		$	285		$	915		$	2,957
Gross margin %		10.9	%		29.1	%		(4.0)	%		14.3	%		8.5	%		26.5	%

Revenue

Consolidated revenues from operations decreased approximately $366,000 or (3.3)% for the three-month period ended March 31, 2023 when compared to the same period in 2022. This is due to a decrease at the ATG of approximately $108,000 or (1.2)% and at the CPG of approximately $258,000 or (12.9)%.

The consolidated decrease in revenue for the three-month period ended March 31, 2023 when compared to the same period in 2022 is attributable to an unfavorable mix of products shipped of approximately $607,000 partially offset by an increase in prices and a higher number of units shipped of approximately $499,000 at the ATG. Additionally, there was a decrease in revenue attributable to an unfavorable mix of products shipped and lower volumes of approximately $258,000 at the CPG as compared to the same period in 2022.

Gross Profit (Loss)

Consolidated gross profit from operations decreased approximately $2,042,000 for the three-month period ended March 31, 2023 when compared to the same period in 2022. The gross profit decreased at the ATG by approximately $1,688,000 and at the CPG by approximately $354,000.

Gross profit benefited in the three-month period from the recovery of business within the commercial aircraft market with price increases of approximately $181,000 which was more than offset by an unfavorable product mix shipped of approximately $839,000 at the ATG resulting in a net increase in operating costs of approximately $1,030,000. The increase in operating costs is primarily due to increased compensation and benefits of approximately $1,095,000 and a net decrease of approximately $65,000 for all other operating expenses as compared to the same period in 2022. The ATG added staff during this period due to increasing production requirements in 2023 to satisfy the increasing customer demand.

Additionally, gross profit in the three-month period decreased approximately $465,000 for an unfavorable product mix shipped at the CPG, partially offset by a net decrease in operating costs of approximately $111,000. The decrease in operating costs is primarily due to favorable operating variances of approximately $251,000 partially offset by an increase in operating overhead costs for compensation and benefits of approximately $51,000, freight expenses of approximately $84,000, and the net increase of approximately $5,000 for all other operating expenses as compared to the same period in 2022.

A change in the cost allocations for the treatment of an ATG work cell operating in the CPG facility became effective January 1, 2023. The three-month period ending March 31, 2023 was a benefit of approximately $162,000 to the ATG cost of goods sold as compared to the benefit of approximately $185,000, as reclassified, to the CPG cost of goods sold for the three-month period ending March 31, 2022. There was no impact to the Condensed Consolidated Statement of Operations due to the change in accounting estimate.

- 20 -

Selling, General and Administrative Expenses and Operating Income/(Losses)

	ATG						CPG						Servotronics, Inc.
	Three months ended						Three months ended						Three months ended
	March 31,						March 31,						March 31,
($000’s omitted)	2023			2022			2023			2022			2023			2022
SG&A:
Selling, general & admin	$	(2,175)		$	(2,093)		$	(651)		$	(408)		$	(2,826)		$	(2,501)
Total SG&A	$	(2,175)		$	(2,093)		$	(651)		$	(408)		$	(2,826)		$	(2,501)
% SG&A to Revenues		24.0	%		22.8	%		37.4	%		20.4	%		26.2	%		22.4	%
Operating (Loss)/Income	$	(1,191)		$	579		$	(720)		$	(123)		$	(1,911)		$	456
Operating (Loss)/Inc %		(13.1)	%		6.3	%		(41.3)	%		(6.2)	%		(17.7)	%		4.1	%

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) increased approximately $325,000 or (13.0)% for the three-month period ended March 31, 2023 when compared to the same period in 2022. This is due to an increase at both the ATG of approximately $82,000 or (3.9)% and at the CPG of approximately $243,000 or (59.6)%.

The increase is driven by the CPG due to higher compensation and benefits of approximately $135,000, professional fees of approximately $30,000, outbound freight of approximately $35,000, trade shows and sales commissions of approximately $24,000 and a net increase of all other SG&A expenses of approximately $19,000 as compared to the same period in 2022.

Operating (Loss)/Income

Income from operations decreased approximately $2,376,000 when comparing the three-month period ended March 31, 2023 to the same period in 2022. Operating income decreased at both the ATG and CPG approximately $1,770,000 and $597,000, respectively, as compared to the three-month period ended March 31, 2022.

The consolidated decreases in operating income are primarily the result in the decreases in revenue, increases in cost of goods sold, and increases in SG&A expenditures at both Segments, as discussed above.

Other (Expense)/Income:

	ATG						CPG						Servotronics, Inc.
	Three months ended						Three months ended						Three months ended
	March 31,						March 31,						March 31,
($000’s omitted)	2023			2022			2023			2022			2023			2022
Other (Expense)/Income:
Interest expense	$	(53)		$	(70)		$	—		$	—		$	(53)		$	(70)
Gain sale of equipment		—			26			—			—			—			26
Total other expense, net	$	(53)		$	(44)		$	—		$	—		$	(53)		$	(44)
(Loss)/income before income tax provision (benefits)	$	(1,244)		$	535		$	(720)		$	(123)		$	(1,964)		$	412
EBIT %		(13.7)	%		5.8	%		(41.3)	%		(6.2)	%		(18.2)	%		3.7	%

Interest Expense

Interest expense decreased approximately $17,000 primarily due to the reimbursement of the line of credit and equipment financing lease obligations at the ATG for the three-month period ended March 31, 2023 compared to the same period in 2022. See also Note 5, Long-Term Debt, of the accompanying consolidated financial statements for information on long-term debt.

- 21 -

(Loss) Income before Income Taxes

Consolidated loss before income taxes for the three-month period ended March 31, 2023 increased approximately $2,376,000 when compare to the same period in 2022. The consolidated increase is primarily the result of an unfavorable product mix shipped at both the ATG and CPG and increased compensation and benefits costs at the ATG to support the recovery of business within the commercial aircraft market with increased volume and price increases.

Net (Loss) Income

Net Income decreased approximately $1,872,000 when comparing the three-month period ended March 31, 2023 to the same period in 2022. Net income at the ATG was lower by approximately $1,402,000 and by approximately $470,000 at the CPG as compared to the three-month period ended March 31, 2022. The consolidated decrease is primarily the result of the decreases in gross profit and increases in SG&A expenses as discussed above.

Liquidity and Capital Resources

	Three months ended March 31,
($000’s omitted)	2023		2022
CASH FLOW DATA:
Net Cash Flows from:
Operating Activities	$	(2,834)	$	(544)
Investing Activities	$	(437)	$	(77)
Financing Activities	$	438	$	(70)
QUARTER END FINANCIAL POSITION:
Working Capital	$	25,449	$	34,601
Long-term Debt	$	—	$	4,690
CAPITAL EXPENDITURES (1):	$	(437)	$	(77)

(1) NET OF PROCEEDS FROM SALE OF EQUIPMENT AND EQUIPMENT FINANCING

Operating Activities:

We used approximately $2,834,000 in cash from operations during the three- month period ended March 31, 2023 and used approximately $544,000 in cash from operation for the same period in 2022. We had working capital of approximately $25,449,000 and $34,601,000 at March 31, 2023 and March 31, 2022, respectively, of which approximately $1,171,000 and $8,855,000 at March 31, 2023 and March 31, 2022, respectively, was comprised of cash and restricted cash.

The decrease in cash flow from operating activities of approximately $2,290,000 is primarily attributable to a decrease in net income of approximately $1,872,000 as explained previously. In addition, there was a decrease in cash flow due to adjustments to reconcile net (loss) to net cash of approximately $354,000 plus a decrease in cash flow due to an increase in inventories, prepaid income taxes, and accounts payable of approximately $1,462,000. This is offset by an increase in cash flow from accounts receivable, accrued employee compensation and benefit costs, other current assets, post retirement obligations and other accrued liabilities of approximately $1,398,000.

The available borrowing base LOC capacity provides us with the financial resources needed to run our operations and reinvest in our business. We anticipate refinancing our LOC by June 29, 2023. Our ability to maintain sufficient liquidity is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing, and our operations in the future.

- 22 -

Investing Activities:

We used approximately $437,000 in cash from investing activities during the three-month period ended March 31, 2023 as compared to a usage of cash of approximately $77,000 during the same period in 2022. The investing activities were primarily for machinery and equipment and building improvements at the Advance Technology Group.

Financing Activities:

Our primary favorable cash flow from our financing activities of approximately $438,000 in the three-month period ended March 31, 2023 includes proceeds from our borrowing base LOC of approximately $939,000 partially offset by the full repayment of the outstanding balance on our equipment loans of approximately $501,000.

On March 30, 2023, we executed an amendment to our 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, as noted above, we paid in full the outstanding balance on our equipment loans, approximately $501,000 as of December 31, 2022. Additionally, we advanced $500,000 on the Borrowing Base LOC loan for a pledged deposit account with our lender to be used solely to pay interest.

Ongoing Liquidity Considerations

We incurred consolidated operating losses from continuing operations for the quarter ending March 31, 2023 and 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, our operating losses were funded by PPP loans and Employee Retention Credits provided by the U.S. government, which were not available in 2022 or 2023. We had total shareholders’ equity of approximately $33,619,000 as of March 31, 2023. Also, as of that date, we had working capital excluding cash of approximately $24,278,000 and only $939,000 of bank financing outstanding.

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 we amended our 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, we are 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 us with sufficient liquidity for at least the next 12 months.

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 Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) as of March 31, 2023. Based upon that evaluation, the CEO and PFO concluded that the Company’s disclosure controls and procedures were not effective due to the material weakness in the Company’s internal control over financial reporting reported in the Company’s Form 10-K for the year ended December 31, 2022.

Changes in Internal Controls

As reported in the Company’s Form 10-K for the year ended December 31, 2022, management identified certain control deficiencies that, in the aggregate, constitute a material weakness in the Company’s internal control over financial reporting. The Company began its remediation efforts in 2021 and continues with its remediation plan which includes a comprehensive technology assessment by a third party, including the establishment and implementation of an information technology strategy and improving its risk assessment and documentation over the monitoring of internal controls. Except for the implementation of the remediation plan, there have been no changes during the period covered by this report to the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to affect, the Company’s internal controls over financial reporting.

Notwithstanding the existence of the above-mentioned material weakness, the Company believes that the consolidated financial statements in this filing fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. generally accepted accounting principles.

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 litigation incidental to the business, which is not expected to have a material adverse effect on the business or earnings of the Company.

Item 1A.  Risk Factors

Not applicable.

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

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 March 31, 2023, the Company has purchased 360,615 shares and there remains 89,385 shares available to purchase under this program. There were no shares purchased by the Company during the three-month period ended March 31, 2023.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

- 24 -

Item 5.  Other Information

Not applicable.

Item 6.  Exhibits

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 Principal 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)
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 Principal 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 March 31, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of cash flows and (iv) the notes to the consolidated financial statements.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this release, the words “project,” “believe,” “plan,” “anticipate,” “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements involve numerous risks and uncertainties which may cause the actual results of the Company to be materially different from future results expressed or implied by such forward-looking statements. There are a number of factors that will influence the Company’s future operations, including: uncertainties in today’s global economy, including political risks, adverse changes in legal and regulatory environments, and difficulty in predicting defense appropriations, the introduction of new technologies and the impact of competitive products, 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 Company’s ability to accurately align capacity with demand, the availability of financing and changes in interest rates, the outcome of pending and potential litigation, the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of businesses’ and governments’ responses to the pandemic on our operations and personnel, and on commercial activity and demand across our and our customers’ businesses, and on global supply chains, the ability of the Company to obtain and retain key executives and employees and the additional risks discussed elsewhere in this Form 10-Q and in the Company’s other filings with the Securities and Exchange Commission. 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, whether as a result of new information, future events or otherwise.

- 25 -

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: May 15, 2023

SERVOTRONICS, INC.
By:	/s/ William F. Farrell, Jr., Chief Executive Officer
	William F. Farrell, Jr.
	Chief Executive Officer
By:	/s/ Lisa F Bencel, Principal Financial Officer
	Lisa F. Bencel
	Principal Financial Officer

- 26 -

EX-31.1

Exhibit 31.1

CERTIFICATION

I, William F. Farrell Jr., 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:	May 15, 2023
		/s/ William F. Farrell, Jr., Chief Executive Officer
		William F. Farrell, Jr.
		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:	May 15, 2023
		/s/ Lisa F. Bencel, Principal Financial Officer
		Lisa F. Bencel
		Principal 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 March 31, 2023, 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:	May 15, 2023
		/s/ William F. Farrell, Jr., Chief Executive Officer
		William F. Farrell, Jr.
		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 March 31, 2023, 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:	May 15, 2023
		/s/Lisa F. Bencel, Principal Financial Officer
		Lisa F. Bencel
		Principal Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2023	Apr. 26, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Mar. 31, 2023
Entity File Number	1-07109
Entity Registrant Name	SERVOTRONICS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	16-0837866
Entity Address, Address Line One	1110 Maple Street
Entity Address, City or Town	Elma
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	14059
City Area Code	716
Local Phone Number	655-5990
Title of 12(b) Security	Common Stock
Security Exchange Name	NYSEAMER
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		2,525,313
Entity Central Index Key	0000089140
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q1
Amendment Flag	false
Trading Symbol	SVT
Document Fiscal Year Focus	2023

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Current assets:
Cash	$ 671,000	$ 4,004,000
Cash, restricted	500,000	0
Accounts receivable, net	10,746,000	9,469,000
Inventories, net	20,007,000	19,044,000
Prepaid income taxes	138,000	138,000
Other current assets	1,619,000	597,000
Total current assets	33,681,000	33,252,000
Property, plant and equipment, net	10,790,000	10,656,000
Deferred income taxes	1,067,000	1,072,000
Other non-current assets	311,000	314,000
Total Assets	45,849,000	45,294,000
Current liabilities:
Current portion of long-term debt	939,000
Current portion of equipment financing and capital leases		501,000
Current portion of postretirement benefits	87,000	87,000
Accounts payable	4,085,000	3,113,000
Accrued employee compensation and benefits costs	1,377,000	1,163,000
Accrued warranty	594,000	581,000
Other accrued liabilities	1,150,000	762,000
Total current liabilities	8,232,000	6,207,000
Long-term debt	0	0
Post retirement obligation	3,998,000	3,975,000
Shareholders' equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,629,052 shares; outstanding 2,484,042 (2,483,318 - 2022) shares	523,000	523,000
Capital in excess of par value	14,573,000	14,556,000
Retained earnings	22,194,000	23,741,000
Accumulated other comprehensive loss	(2,324,000)	(2,337,000)
Employee stock ownership trust commitment	(157,000)	(157,000)
Treasury stock, at cost 103,739 (104,464 - 2022) shares	(1,190,000)	(1,214,000)
Total shareholders' equity	33,619,000	35,112,000
Total Liabilities and Shareholders' Equity	$ 45,849,000	$ 45,294,000

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
CONDENSED 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	2,629,052	2,629,052
Common stock, shares outstanding	2,484,042	2,483,318
Treasury stock, shares	103,739	104,464

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue	$ 10,802	$ 11,168
Costs and expenses:
Cost of goods sold, inclusive of depreciation and amortization	9,887	8,211
Gross profit	915	2,957
Operating expenses:
Selling, general and administrative	2,826	2,501
Total operating expenses	2,826	2,501
Operating (loss)/income	(1,911)	456
Other (expense)/income:
Interest expense	(53)	(70)
Gain on sale of equipment		26
Total other expense, net	(53)	(44)
(Loss)/income before income taxes	(1,964)	412
Income tax benefit/(provision)	417	(87)
Net (loss)/income	$ (1,547)	$ 325
Basic
Net income per share	$ (0.63)	$ 0.13
Diluted
Net income per share	$ (0.63)	$ 0.13

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
Net (Loss)/Income	$ (1,547)	$ 325
Other comprehensive (loss)/income items:
Actuarial gains	16	27
Income tax expense on actuarial losses	(3)	(5)
Other comprehensive income:
Retirement benefits adjustments, net of income taxes	13	22
Total comprehensive (loss)/income	$ (1,534)	$ 347

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Cash flows related to operating activities:
Net (Loss)Income	$ (1,547,000)	$ 325,000
Adjustments to reconcile net (loss) income to net cash used by operating activities:
Depreciation and amortization	306,000	313,000
Gain on sale of equipment		(26,000)
Stock based compensation	55,000	25,000
(Decrease)/increase in allowance for credit losses	(10,000)	65,000
(Decrease)/increase in inventory reserve	(175,000)	168,000
Increase in warranty reserve	13,000
Deferred income taxes	2,000
Change in assets and liabilities:
Accounts receivable	(1,267,000)	(2,171,000)
Inventories	(788,000)	(222,000)
Prepaid income taxes		199,000
Other current assets	(1,022,000)	(783,000)
Accounts payable	972,000	1,669,000
Accrued employee compensation and benefit costs	200,000	(72,000)
Other accrued liabilities	388,000	(68,000)
Post retirement obligation	39,000	34,000
Net cash used by operating activities	(2,834,000)	(544,000)
Cash flows related to investing activities:
Capital expenditures - property, plant and equipment	(437,000)	(115,000)
Proceeds from sale of assets		38,000
Net cash used by investing activities	(437,000)	(77,000)
Cash flows related to financing activities:
Principal payments on equipment financing lease/note obligations	(501,000)	(70,000)
Proceeds from line of credit, net	939,000
Net cash provided (used) by financing activities	438,000	(70,000)
Net decrease in cash and restricted cash	(2,833,000)	(691,000)
Cash and restricted cash at beginning of period	4,004,000	9,546,000
Cash and restricted cash at end of period	$ 1,171,000	$ 8,855,000

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2023

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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The consolidated financial statements should be read in conjunction with the 2022 annual report and the notes thereto.

XML

Business Description and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2023

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. The company operates through two primary segments: the Advanced Technology Group (ATG) and the Consumer Products Group (CPG).

The Company was incorporated in New York in 1959. In 1972, the Company was merged into a wholly-owned subsidiary organized under the laws of the State of Delaware, thereby changing the Company’s state of incorporation from New York to Delaware.

The Company’s shares currently trade on the New York Stock Exchange (NYSE American) under the symbol SVT.

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 and Restricted Cash

The following table provides a reconciliation of cash and restricted cash to the amounts in the statement of cash flow in thousands.

	March 31,		December 31,
	2023		2022
	($000's omitted)
Cash	$	671	$	4,004
Restricted cash		500		—
Total Cash and restricted cash	$	1,171	$	4,004

The Company considers cash to include all currency and coin owned by the Company as well as all deposits in the bank including checking accounts and savings accounts. The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its Amendment No.7 and Waiver of Agreements (the “Amendment”) effective March 30, 2023 of approximately $500,000 at March 31, 2023 ($0 at December 31, 2022). See note 5 for further discussion.

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 credit losses. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for credit losses based on history of past write-offs, collections, and current credit conditions. The allowance for credit losses amounted to approximately $125,000 and $135,000 as of March 31, 2023 and December 31, 2022, respectively. The Company does not accrue interest on past due receivables.

The Company evaluated the ASU related to Current Expected Credit Losses (“CECL”) and determined that the pronouncement does not have a material effect on the financial position, results of operations or cash flows of the Company.

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. Shipping and handling activities that occur after the customer obtains control of the promised goods are considered fulfillment activities.

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 March 31, 2023, and December 31, 2022 under the guidance of ASC 460 the Company has recorded a warranty reserve of approximately $594,000 and $581,000, respectively. 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 determined to be slow moving are applied to the gross value of the inventory through a reserve of approximately $1,083,000 and $1,258,000 as of March 31, 2023 and December 31, 2022, 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 two years of customer requirements. Also, in order to maintain a reasonable and/or agreed to lead time or minimum stocking requirements, certain larger quantities of other product support items may have to be purchased and may result in over one year’s supply. The 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 ROU (Right of Use) assets. 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

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, Texas, California and Connecticut state income tax returns and a separate Arkansas state income tax return.

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 condensed consolidated balance sheets as of March 31, 2023 or December 31, 2022, and did not recognize any interest and/or penalties in its condensed consolidated statements of operations during the periods ended March 31, 2023 and March 31, 2022. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of March 31, 2023 and December 31, 2022. The 2019 through 2022 federal and state tax returns remain subject to examination.

Supplemental Cash Flow Information

There were no income taxes paid or refunded for the three-month period ended March 31, 2023, there were income tax refunds received of approximately $113,000 for the same three-month period ended March 31, 2022. Interest paid amounted to approximately $5,000 and $31,000, during the three months ended March 31, 2023 and March 31, 2022, 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, the Company 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 as of March 31, 2023 and December 31, 2022.

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 condensed 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 with classifications adopted in the current period.

Effective January1, 2023 the ATG research and development and certain insurance expenditures of approximately $395,000 are reflected in selling, general and administrative operating expenses.  Accordingly, approximately $319,000 was reclassified for the same period in 2022. There was no impact to the condensed consolidated statement of operations due to the reclassification.

Research and Development Costs

Research and development costs are expensed as incurred and are included in the selling, general and administrative on the Condensed Consolidated Statements of Operations.

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.

Recent Accounting Pronouncements Adopted

Effective January 1, 2023 the Company adopted the Accounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, issued by the Financial Accounting Standards Board (“FASB”) which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. The ASU requires financial assets measured at amortized cost (including

loans, trade receivables and held-to-maturity debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected to occur over the remaining life of the asset, rather than incurred losses. The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the statement of income as the amounts expected to be collected change.

The Company evaluated the ASU related to Current Expected Credit Losses (“CECL”) and determined that the pronouncement does not have a material effect on the financial position, results of operations or cash flows of the Company.  

There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, that are of significance, or potential significance, to the Company.

XML

Inventories

3 Months Ended

Mar. 31, 2023

Inventories

Inventories

3.           Inventories

	March 31,		December 31,
	2023		2022
	($000’s omitted)
Raw material and common parts	$	15,239	$	14,534
Work-in-process		3,490		3,258
Finished goods		2,361		2,510
		21,090		20,302
Less inventory reserve		(1,083)		(1,258)
Total inventories	$	20,007	$	19,044

XML

Property, Plant and Equipment

3 Months Ended

Mar. 31, 2023

Property, Plant and Equipment

Property, Plant and Equipment

4.           Property, Plant and Equipment

	March 31,		December 31,
	2023		2022
	($000’s omitted)
Land	$	7	$	7
Buildings		11,886		11,843
Machinery, equipment and tooling		21,216		20,757
Construction in progress		1,023		1,087
		34,132		33,694
Less accumulated depreciation and amortization		(23,342)		(23,038)
Total property, plant and equipment	$	10,790	$	10,656

Depreciation and amortization expense amounted to approximately $306,000 and $313,000 for each of the three months ended March 31, 2023 and March 31, 2022, respectively. Depreciation expense amounted to approximately $298,000 and $305,000 for the three months ended March 31, 2023 and March 31, 2022, respectively. Amortization expense primarily related to capital leases amounted to approximately $8,000 for each of the three months ended March 31, 2023 and March 31, 2022.

The Company’s Right of Use (“ROU”) assets included in machinery, equipment and tooling had a net book value of approximately $178,000 as of March 31, 2023 ($185,000- December 31, 2022).

As of March 31, 2023, there is approximately $1,023,000 ($1,087,000 – December 31, 2022) of construction in progress (CIP) included in property, plant and equipment all of which is related to capital projects.  There is approximately $384,000 in CIP for the machinery and equipment and approximately $639,000 for building improvements at the Advance Technology Group.

XML

Long-Term Debt

3 Months Ended

Mar. 31, 2023

Long-Term Debt.

Long-Term Debt

5.           Long-Term Debt

	March 31,		December 31,
	2023		2022
	($000’s omitted)
Line of credit payable to a financial institution; Interest rate is BSBY plus 4.0 percentage points (Interest Rate 8.88% as of March 31, 2023)(A)	$	939	$	—
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 1.7955% - 1.8350% as of March 31, 2023)(B)		—		491
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 1.8227% - 1.8690% at time of funding)©		—		10
		939		501
Less current portion		(939)		(501)
Long-term debt	$	—	$	—

A.) 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. Accordingly, as of December 31, 2022, the Company was not in compliance with this covenant under its loan agreement. Subsequently, on March 13, 2023 the availability of the Line of Credit (“LOC”) was temporarily frozen.

On March 30, 2023, the Company executed 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 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 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 its equipment loans, approximately $501,000 as of December 31, 2022. Additionally, the Company advanced $500,000 on the Borrowing Base LOC for a pledged deposit account with its lender to be used solely to pay interest.

The Company intends to refinance the LOC with a different lender by June 29, 2023. Failure to deliver a commitment letter to its 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 its current lender of up to $300,000.

There was approximately $939,000 outstanding at March 31, 2023 and $0 balance outstanding at December 31, 2022.

We incurred consolidated operating losses for the quarter ended March 31, 2023 and for the year ended December 31, 2022. The losses incurred were predominately driven by our decision to maintain our experienced and knowledgeable workforce during the pandemic years and hire ahead of expected increased customer demand at the ATG.

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 we amended our 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, we are 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 us with sufficient liquidity for at least the next 12 months. We had total shareholders’ equity of approximately $33,619,000 as of March 31, 2023. Also as of that date, we had working capital excluding cash, of approximately $24,278,000.

B.) The Company established 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 was 60 months. Monthly payments were fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There was no outstanding balance at March 31, 2023 and $491,000 balance outstanding at December 31, 2022.

C.) 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 was 60 months. Monthly payments were fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There was no outstanding balance at March 31, 2023 and $10,000 at December 31, 2022.

XML

Postretirement Benefit Plan

3 Months Ended

Mar. 31, 2023

Postretirement Benefit Plan

Postretirement Benefit Plan

6.            Postretirement Benefit Plan

The Company provides certain postretirement health and life insurance benefits for two former executives of the Company (the Plan). Upon ceasing employment with the Company, the Company is paying the annual cost of health insurance coverage and providing life insurance at the same level of coverage provided to the former employee at the time of termination of employment by the Company. The Plan also provides a benefit to reimburse the participants for certain out-of-pocket medical or health related expenses. The participant’s insurance benefits cease upon their death.. The Plan is unfunded and the actuarially determined future accumulated postretirement benefit obligation at March 31, 2023 and December 31, 2022 was approximately $4,085,000 and $4,062,000, respectively and has been recognized in Post Retirement Obligation in the accompanying condensed consolidated balance sheets. The components of the Plan were not material for the three-month period ended March 31, 2023 and March 31, 2022 respectively.

Benefit cost for the three months ended March 31, 2023 and March 31, 2022 totaled $65,000 and $69,000, respectively.

XML

Shareholders' Equity

3 Months Ended

Mar. 31, 2023

Shareholders' Equity

Shareholders' Equity

7.           Shareholders’ Equity

	Three-month Period Ended March 31, 2023
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Loss		Common Stock		par value		ESOT		stock		equity
December 31, 2022	$	23,741	$	(2,337)	$	523	$	14,556	$	(157)	$	(1,214)	$	35,112
Retirement benefits adjustment		—		13		—		—		—		—		13
Stock based compensation		—		—		—		17		—		24		41
Net Loss		(1,547)		—		—		—		—		—		(1,547)
March 31, 2023	$	22,194	$	(2,324)	$	523	$	14,573	$	(157)	$	(1,190)	$	33,619

	Three-month Period Ended March 31, 2022
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		Common Stock		par value		ESOT		stock		equity
December 31, 2021	$	25,858	$	(3,908)	$	523	$	14,500	$	(258)	$	(1,349)	$	35,366
Retirement benefits adjustment		—		22		—		—		—		—		22
Stock based compensation		—		—		—		2		—		23		25
Net Income		325		—		—		—		—		—		325
March 31, 2022	$	26,183	$	(3,886)	$	523	$	14,502	$	(258)	$	(1,326)	$	35,738

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 March 31, 2023, the Company has purchased 360,615 shares and there remains 89,385 shares available to purchase under this program. There were no shares purchased by the Company during the three-month period ended March 31, 2023 and March 31, 2022.

The Company’s director compensation policy provides that non-employee directors receive a portion of their annual retainer in the form of restricted stock under the Company’s 2022 Equity Incentive Plan. These shares vest quarterly over a twelve-month service period, have voting rights and accrue dividends that are paid upon vesting. The aggregate amount of expense to the Company, measured based on the grant date fair value, is recognized over the requisite service period. An aggregate of 11,345 restricted shares were issued on August 15, 2022 with a grant date fair value of $125,000. An additional aggregate of 725 restricted shares were issued on February 16, 2023 with a grant date fair value of $7,808.

Included in the three-month period ended March 31, 2023 and March 31, 2022 is approximately $55,000 and $25,000, respectively, of stock-based compensation expense related to the restrictive share awards. The Company has approximately $177,000 of stock-based compensation expense related to unvested shares to be recognized over the requisite service period.

		Weighted Average
		Grant Date Fair
	Shares	Value
Restricted Share Activity:
Unvested at December 31, 2022	27,010	$	11.09
Granted in 2023	725	$	10.77
Vested in 2023	4,978	$	11.03
Unvested at March 31, 2023	22,757	$	11.09

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of 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 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
	March 31,
	2023		2022
	($000’s omitted except per share data)
Net (Loss) Income	$	(1,547)	$	325
Weighted average common shares outstanding (basic)		2,460		2,432
Unvested restricted stock		24		3
Weighted average common shares outstanding (diluted)		2,484		2,435
Basic
Net (loss) income per share	$	(0.63)	$	0.13
Diluted
Net (loss) income per share	$	(0.63)	$	0.13

XML

Litigation

3 Months Ended

Mar. 31, 2023

Litigation

Litigation

8.           Litigation

In the course of its business, the Company is subject to a variety of claims and lawsuits that are inherently subject to many uncertainties regarding the possibility of a loss to the Company. Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management, after consulting with legal counsel, about future events and can rely heavily on estimates and assumptions. The Company carries liability insurance, subject to certain deductibles and policy limits, for such claims as they arise and may from time to time establish reserves for litigation that is considered probable of a loss. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

On June 7, 2021, a Summons and Complaint was filed by an employee in the Supreme Court of the State of New York, County of Erie, against Servotronics, Inc., the Servotronics Board of Directors, The Ontario Knife Company and Kenneth D. Trbovich (collectively, the “Defendants”). The Complaint alleges certain violations under the New York Human Rights Law by the Defendants relating to the employee’s employment by the Company as well as intentional and negligent infliction of emotional distress. The complaint also alleges certain purported derivative causes of action against all Defendants, including breach of fiduciary duties, fraud and corporate waste. The complaint seeks monetary damages in an amount not less than $5,000,000 with respect to the direct causes of action and equitable relief with respect to the purported derivative causes of action. The Defendants filed a motion to dismiss the Complaint on August 6, 2021. On January 13, 2022, the Defendants’ motion to dismiss was granted, in part, and denied, in part. This litigation is still in its earliest stages. The Company is insured for such matters in the amount of $3 million with a retention of $250,000. Additionally, there is an excess coverage policy for $3 million that considers the payment of the earlier insurance policy as the $1 million retention. Based on the information known by the Company as of the date of this filing, the Company does not consider the risk of loss to be probable and is unable to reasonably or accurately estimate the likelihood and amount of any liability that may be realized as a result of this litigation. Accordingly, no loss has been recognized in the accompanying financials statements related to this litigation. The Company intends to vigorously defend against this litigation.

On December 21, 2021, the Company’s former Chief Executive Officer (“Former CEO”) delivered his Notice of Termination and alleged that the Company breached the terms of the Employment Agreement between the Company and the Former CEO by, among others, placing the Former CEO on paid administrative leave pending an internal investigation in June 2021. On December 22, 2021, the Board of Directors accepted the Former CEO’s resignation from the Company but rejected his request to treat his resignation as resignation for good reason under Paragraph 10 of his Employment Agreement. The Board also determined, based on the findings of its investigation, that the Former CEO committed willful malfeasance in violation of his Employment Agreement, and that such willful malfeasance would have justified termination of employment pursuant to Paragraph 9 of the Employment Agreement, but for his earlier resignation. The Former CEO claims that he is entitled to a severance payment equal to 2.99 times his average annual compensation as set forth in the Employment Agreement, plus the reimbursement of certain expenses and the value of any lost benefits. As noted above, the Board of Directors rejected the Former CEO’s claim that the Company breached the Employment Agreement. Accordingly, the Company is classifying the Former CEO’s termination as a voluntary resignation for which no severance is due. The Employment Agreement provides that disputes arising thereunder shall be settled by arbitration. To date, neither party has commenced an arbitration proceeding with respect to these matters. Based on the information known by the Company as of the date of this filing, if a claim is ultimately asserted, the Company does not consider the risk of loss to be probable and is unable to reasonably or accurately estimate the likelihood and amount of any liability that may be realized with respect to this matter.

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

XML

Business Segments

3 Months Ended

Mar. 31, 2023

Business Segments

Business Segments

9.         Business Segments

The Company operates in two business segments, Advanced Technology Group (“ATG”) and Consumer Products Group (“CPG”). The Company’s reportable segments are strategic business units that offer different products and services. The segments are composed of separate corporations and are managed separately. Operations in ATG 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.

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

	($000’s omitted except per share data)
	ATG						CPG						Consolidated
	Three Months Ended						Three Months Ended						Three Months Ended
	March 31,						March 31,						March 31,
	2023			2022			2023			2022			2023			2022
Revenues from unaffiliated customers	$	9,060		$	9,168		$	1,742		$	2,000		$	10,802		$	11,168
Cost of goods sold, inclusive of depreciation		(8,076)			(6,496)			(1,811)			(1,715)			(9,887)		$	(8,211)
Gross profit (loss)		984			2,672			(69)			285			915			2,957
Gross margin %		10.9	%		29.1	%		(4.0)	%		14.3	%		8.5	%		26.5	%
Operating expenses:
Selling, general and administrative		(2,175)			(2,093)			(651)			(408)			(2,826)			(2,501)
Total operating costs and expenses		(10,251)			(8,589)			(2,462)			(2,123)			(12,713)			(10,712)
Operating (loss)/income		(1,191)			579			(720)			(123)			(1,911)			456
Other (expenses)/income:
Interest expense		(53)			(70)			—			—			(53)			(70)
Gain on sale of equipment		—			26			—			—			—			26
Total other expenses, net		(53)			(44)			—			—			(53)			(44)
(Loss)/income before income tax provision		(1,244)			535			(720)			(123)			(1,964)			412
Income tax benefit/(provision)		264			(113)			153			26			417			(87)
Net (loss)/income	$	(980)		$	422		$	(567)		$	(97)		$	(1,547)		$	325
Total assets	$	36,096		$	42,382		$	9,753		$	9,546		$	45,849		$	51,928
Capital expenditures, net	$	302		$	77		$	135		$	—		$	437		$	77
Foreign derived sales	$	2,023		$	2,962		$	63		$	37		$	2,086		$	2,999

XML

Business Description and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Business Description and Summary of Significant Accounting Policies

Business Description

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. The company operates through two primary segments: the Advanced Technology Group (ATG) and the Consumer Products Group (CPG).

The Company was incorporated in New York in 1959. In 1972, the Company was merged into a wholly-owned subsidiary organized under the laws of the State of Delaware, thereby changing the Company’s state of incorporation from New York to Delaware.

The Company’s shares currently trade on the New York Stock Exchange (NYSE American) under the symbol SVT.

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 and Restricted Cash

Cash and Restricted Cash

The following table provides a reconciliation of cash and restricted cash to the amounts in the statement of cash flow in thousands.

	March 31,		December 31,
	2023		2022
	($000's omitted)
Cash	$	671	$	4,004
Restricted cash		500		—
Total Cash and restricted cash	$	1,171	$	4,004

The Company considers cash to include all currency and coin owned by the Company as well as all deposits in the bank including checking accounts and savings accounts. The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its Amendment No.7 and Waiver of Agreements (the “Amendment”) effective March 30, 2023 of approximately $500,000 at March 31, 2023 ($0 at December 31, 2022). See note 5 for further discussion.

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 credit losses. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for credit losses based on history of past write-offs, collections, and current credit conditions. The allowance for credit losses amounted to approximately $125,000 and $135,000 as of March 31, 2023 and December 31, 2022, respectively. The Company does not accrue interest on past due receivables.

The Company evaluated the ASU related to Current Expected Credit Losses (“CECL”) and determined that the pronouncement does not have a material effect on the financial position, results of operations or cash flows of the Company.

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. Shipping and handling activities that occur after the customer obtains control of the promised goods are considered fulfillment activities.

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 March 31, 2023, and December 31, 2022 under the guidance of ASC 460 the Company has recorded a warranty reserve of approximately $594,000 and $581,000, respectively. 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 determined to be slow moving are applied to the gross value of the inventory through a reserve of approximately $1,083,000 and $1,258,000 as of March 31, 2023 and December 31, 2022, 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 two years of customer requirements. Also, in order to maintain a reasonable and/or agreed to lead time or minimum stocking requirements, certain larger quantities of other product support items may have to be purchased and may result in over one year’s supply. The 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 ROU (Right of Use) assets. 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

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, Texas, California and Connecticut state income tax returns and a separate Arkansas state income tax return.

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 condensed consolidated balance sheets as of March 31, 2023 or December 31, 2022, and did not recognize any interest and/or penalties in its condensed consolidated statements of operations during the periods ended March 31, 2023 and March 31, 2022. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of March 31, 2023 and December 31, 2022. The 2019 through 2022 federal and state tax returns remain subject to examination.

Cash Flow, Supplemental Disclosures [Policy Text Block]

Supplemental Cash Flow Information

There were no income taxes paid or refunded for the three-month period ended March 31, 2023, there were income tax refunds received of approximately $113,000 for the same three-month period ended March 31, 2022. Interest paid amounted to approximately $5,000 and $31,000, during the three months ended March 31, 2023 and March 31, 2022, 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, the Company 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 as of March 31, 2023 and December 31, 2022.

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 condensed 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 with classifications adopted in the current period.

Effective January1, 2023 the ATG research and development and certain insurance expenditures of approximately $395,000 are reflected in selling, general and administrative operating expenses.  Accordingly, approximately $319,000 was reclassified for the same period in 2022. There was no impact to the condensed consolidated statement of operations due to the reclassification.

Research and Development Costs

Research and Development Costs

Research and development costs are expensed as incurred and are included in the selling, general and administrative on the Condensed Consolidated Statements of Operations.

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.

Recent Accounting Pronouncements Adopted

Recent Accounting Pronouncements Adopted

Effective January 1, 2023 the Company adopted the Accounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, issued by the Financial Accounting Standards Board (“FASB”) which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. The ASU requires financial assets measured at amortized cost (including

loans, trade receivables and held-to-maturity debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected to occur over the remaining life of the asset, rather than incurred losses. The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the statement of income as the amounts expected to be collected change.

The Company evaluated the ASU related to Current Expected Credit Losses (“CECL”) and determined that the pronouncement does not have a material effect on the financial position, results of operations or cash flows of the Company.  

There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, that are of significance, or potential significance, to the Company.

XML

Business Description and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2023

Business Description and Summary of Significant Accounting Policies

Schedule of reconciliation of cash and restricted cash to the amounts in the statement of cash flow

	March 31,		December 31,
	2023		2022
	($000's omitted)
Cash	$	671	$	4,004
Restricted cash		500		—
Total Cash and restricted cash	$	1,171	$	4,004

Schedule of estimated useful lives of depreciable properties

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

XML

Inventories (Tables)

3 Months Ended

Mar. 31, 2023

Inventories

Schedule of inventories

	March 31,		December 31,
	2023		2022
	($000’s omitted)
Raw material and common parts	$	15,239	$	14,534
Work-in-process		3,490		3,258
Finished goods		2,361		2,510
		21,090		20,302
Less inventory reserve		(1,083)		(1,258)
Total inventories	$	20,007	$	19,044

XML

Property, Plant and Equipment (Tables)

3 Months Ended

Mar. 31, 2023

Property, Plant and Equipment

Schedule of property, plant and equipment

	March 31,		December 31,
	2023		2022
	($000’s omitted)
Land	$	7	$	7
Buildings		11,886		11,843
Machinery, equipment and tooling		21,216		20,757
Construction in progress		1,023		1,087
		34,132		33,694
Less accumulated depreciation and amortization		(23,342)		(23,038)
Total property, plant and equipment	$	10,790	$	10,656

XML

Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2023

Long-Term Debt.

Schedule of long-term debt

	March 31,		December 31,
	2023		2022
	($000’s omitted)
Line of credit payable to a financial institution; Interest rate is BSBY plus 4.0 percentage points (Interest Rate 8.88% as of March 31, 2023)(A)	$	939	$	—
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 1.7955% - 1.8350% as of March 31, 2023)(B)		—		491
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 1.8227% - 1.8690% at time of funding)©		—		10
		939		501
Less current portion		(939)		(501)
Long-term debt	$	—	$	—

A.) 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. Accordingly, as of December 31, 2022, the Company was not in compliance with this covenant under its loan agreement. Subsequently, on March 13, 2023 the availability of the Line of Credit (“LOC”) was temporarily frozen.

On March 30, 2023, the Company executed 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 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 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 its equipment loans, approximately $501,000 as of December 31, 2022. Additionally, the Company advanced $500,000 on the Borrowing Base LOC for a pledged deposit account with its lender to be used solely to pay interest.

The Company intends to refinance the LOC with a different lender by June 29, 2023. Failure to deliver a commitment letter to its 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 its current lender of up to $300,000.

There was approximately $939,000 outstanding at March 31, 2023 and $0 balance outstanding at December 31, 2022.

We incurred consolidated operating losses for the quarter ended March 31, 2023 and for the year ended December 31, 2022. The losses incurred were predominately driven by our decision to maintain our experienced and knowledgeable workforce during the pandemic years and hire ahead of expected increased customer demand at the ATG.

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 we amended our 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, we are 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 us with sufficient liquidity for at least the next 12 months. We had total shareholders’ equity of approximately $33,619,000 as of March 31, 2023. Also as of that date, we had working capital excluding cash, of approximately $24,278,000.

B.) The Company established 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 was 60 months. Monthly payments were fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There was no outstanding balance at March 31, 2023 and $491,000 balance outstanding at December 31, 2022.

C.) 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 was 60 months. Monthly payments were fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There was no outstanding balance at March 31, 2023 and $10,000 at December 31, 2022.

XML

Shareholders' Equity (Tables)

3 Months Ended

Mar. 31, 2023

Shareholders' Equity

Schedule of stockholders equity

	Three-month Period Ended March 31, 2023
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Loss		Common Stock		par value		ESOT		stock		equity
December 31, 2022	$	23,741	$	(2,337)	$	523	$	14,556	$	(157)	$	(1,214)	$	35,112
Retirement benefits adjustment		—		13		—		—		—		—		13
Stock based compensation		—		—		—		17		—		24		41
Net Loss		(1,547)		—		—		—		—		—		(1,547)
March 31, 2023	$	22,194	$	(2,324)	$	523	$	14,573	$	(157)	$	(1,190)	$	33,619

	Three-month Period Ended March 31, 2022
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		Common Stock		par value		ESOT		stock		equity
December 31, 2021	$	25,858	$	(3,908)	$	523	$	14,500	$	(258)	$	(1,349)	$	35,366
Retirement benefits adjustment		—		22		—		—		—		—		22
Stock based compensation		—		—		—		2		—		23		25
Net Income		325		—		—		—		—		—		325
March 31, 2022	$	26,183	$	(3,886)	$	523	$	14,502	$	(258)	$	(1,326)	$	35,738

Summary of restricted stock activity

		Weighted Average
		Grant Date Fair
	Shares	Value
Restricted Share Activity:
Unvested at December 31, 2022	27,010	$	11.09
Granted in 2023	725	$	10.77
Vested in 2023	4,978	$	11.03
Unvested at March 31, 2023	22,757	$	11.09

Schedule of earnings per share

	Three Months Ended
	March 31,
	2023		2022
	($000’s omitted except per share data)
Net (Loss) Income	$	(1,547)	$	325
Weighted average common shares outstanding (basic)		2,460		2,432
Unvested restricted stock		24		3
Weighted average common shares outstanding (diluted)		2,484		2,435
Basic
Net (loss) income per share	$	(0.63)	$	0.13
Diluted
Net (loss) income per share	$	(0.63)	$	0.13

XML

Business Segments (Tables)

3 Months Ended

Mar. 31, 2023

Business Segments

Schedule of information regarding operations in business segment

	($000’s omitted except per share data)
	ATG						CPG						Consolidated
	Three Months Ended						Three Months Ended						Three Months Ended
	March 31,						March 31,						March 31,
	2023			2022			2023			2022			2023			2022
Revenues from unaffiliated customers	$	9,060		$	9,168		$	1,742		$	2,000		$	10,802		$	11,168
Cost of goods sold, inclusive of depreciation		(8,076)			(6,496)			(1,811)			(1,715)			(9,887)		$	(8,211)
Gross profit (loss)		984			2,672			(69)			285			915			2,957
Gross margin %		10.9	%		29.1	%		(4.0)	%		14.3	%		8.5	%		26.5	%
Operating expenses:
Selling, general and administrative		(2,175)			(2,093)			(651)			(408)			(2,826)			(2,501)
Total operating costs and expenses		(10,251)			(8,589)			(2,462)			(2,123)			(12,713)			(10,712)
Operating (loss)/income		(1,191)			579			(720)			(123)			(1,911)			456
Other (expenses)/income:
Interest expense		(53)			(70)			—			—			(53)			(70)
Gain on sale of equipment		—			26			—			—			—			26
Total other expenses, net		(53)			(44)			—			—			(53)			(44)
(Loss)/income before income tax provision		(1,244)			535			(720)			(123)			(1,964)			412
Income tax benefit/(provision)		264			(113)			153			26			417			(87)
Net (loss)/income	$	(980)		$	422		$	(567)		$	(97)		$	(1,547)		$	325
Total assets	$	36,096		$	42,382		$	9,753		$	9,546		$	45,849		$	51,928
Capital expenditures, net	$	302		$	77		$	135		$	—		$	437		$	77
Foreign derived sales	$	2,023		$	2,962		$	63		$	37		$	2,086		$	2,999

XML

Business Description and Summary of Significant Accounting Policies - Cash and Restricted Cash (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
Reconciliation of cash and restricted cash to the amounts in the statement of cash flow
Cash	$ 671,000	$ 4,004,000
Restricted cash	500,000	0
Total Cash and restricted cash	$ 1,171,000	$ 4,004,000	$ 8,855,000	$ 9,546,000

XML

Business Description and Summary of Significant Accounting Policies - Estimated useful lives of depreciable properties (Details)	3 Months Ended
	Mar. 31, 2023
Buildings and improvements | Minimum
Business Description and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	5 years
Buildings and improvements | Maximum
Business Description and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	40 years
Machinery and equipment | Minimum
Business Description and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	5 years
Machinery and equipment | Maximum
Business Description and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	20 years
Tooling | Minimum
Business Description and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	3 years
Tooling | Maximum
Business Description and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	5 years

XML

Business Description and Summary of Significant Accounting Policies - Additional Information (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2023 USD ($) Y	Mar. 31, 2022 USD ($)	Dec. 31, 2022 USD ($)
Business Description and Summary of Significant Accounting Policies
Allowance for doubtful accounts	$ 125,000		$ 135,000
Warranty period	27 months
Warranty reserve	$ 594,000		581,000
Inventory reserve	1,083,000		1,258,000
Income taxes paid or refunded	0
Income taxes refunded/paid		$ 113,000
Interest paid	5,000	31,000
Impairment of long-lived assets	0		$ 0
ATG Research and development expenditures
Business Description and Summary of Significant Accounting Policies
Research and Development Costs	$ 395,000
Selling, general and administrative
Business Description and Summary of Significant Accounting Policies
Research and Development Costs		$ 319,000
Minimum
Business Description and Summary of Significant Accounting Policies
Number of year's supply | Y	1
Period inventory is expected to be used	2 years

XML

Inventories (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Inventories
Raw material and common parts	$ 15,239,000	$ 14,534,000
Work-in-process	3,490,000	3,258,000
Finished goods	2,361,000	2,510,000
Inventory, Gross	21,090,000	20,302,000
Less inventory reserve	(1,083,000)	(1,258,000)
Total inventories	$ 20,007,000	$ 19,044,000

XML

Property, Plant and Equipment - Summary of property, plant and equipment (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Property, Plant and Equipment
Property, plant and equipment, Gross	$ 34,132,000	$ 33,694,000
Less accumulated depreciation and amortization	(23,342,000)	(23,038,000)
Property, plant and equipment, net	10,790,000	10,656,000
Land
Property, Plant and Equipment
Property, plant and equipment, Gross	7,000	7,000
Buildings
Property, Plant and Equipment
Property, plant and equipment, Gross	11,886,000	11,843,000
Machinery, equipment and tooling
Property, Plant and Equipment
Property, plant and equipment, Gross	21,216,000	20,757,000
Construction in progress
Property, Plant and Equipment
Property, plant and equipment, Gross	$ 1,023,000	$ 1,087,000

XML

Property, Plant and Equipment - Additional Information (Details) - USD ($)	3 Months Ended		15 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Mar. 31, 2023	Dec. 31, 2022
Property, Plant and Equipment
Depreciation and amortization expense	$ 306,000	$ 313,000
Depreciation	298,000	$ 305,000
Amortization expense			$ 8,000
Property, plant and equipment, Gross	34,132,000		34,132,000	$ 33,694,000
Machinery and equipment
Property, Plant and Equipment
ROU assets	178,000		178,000	185,000
Property, plant and equipment, Gross	21,216,000		21,216,000	20,757,000
Construction in progress
Property, Plant and Equipment
Property, plant and equipment, Gross	1,023,000		1,023,000	$ 1,087,000
Construction In Progress Machinery And Equipment [Member]
Property, Plant and Equipment
Property, plant and equipment, Gross	384,000		384,000
Construction InProgress Building Improvement [Member]
Property, Plant and Equipment
Property, plant and equipment, Gross	$ 639,000		$ 639,000

XML

Long-Term Debt - Summary of long term debt (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Long-Term Debt
Long-term debt, Total	$ 939,000	$ 501,000
Less current portion	(939,000)	(501,000)
Long term debt	0	0
Line of credit (LOC)
Long-Term Debt
Long-term debt, Total	939,000	0
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 1.7955% - 1.8350% as of March 31, 2023)(B)
Long-Term Debt
Long-term debt, Total	0	491,000
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 1.8227% - 1.8690% at time of funding)
Long-Term Debt
Long-term debt, Total	$ 0	$ 10,000

XML

Long-Term Debt - Summary of long term debt information (Details)	3 Months Ended
	Mar. 31, 2023
Line of credit (LOC)
Debt Instrument
Percentage of floating interest rate payable	8.88%
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 1.7955% - 1.8350% as of March 31, 2023)(B) | Minimum
Debt Instrument
Percentage of floating interest rate payable	1.7955%
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 1.7955% - 1.8350% as of March 31, 2023)(B) | Maximum
Debt Instrument
Percentage of floating interest rate payable	1.835%
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 1.8227% - 1.8690% at time of funding) | Minimum
Debt Instrument
Percentage of floating interest rate payable	1.8227%
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 1.8227% - 1.8690% at time of funding) | Maximum
Debt Instrument
Percentage of floating interest rate payable	1.869%
BSBY | Line of credit (LOC)
Debt Instrument
Spread on variable rate	4.00%

XML

Long-Term Debt - Additional Information (Details) - USD ($)		3 Months Ended	12 Months Ended
	Mar. 30, 2023	Mar. 31, 2023	Dec. 31, 2022	Aug. 01, 2023	Jun. 29, 2023	Mar. 31, 2022	Dec. 31, 2021	Jul. 09, 2021	Jun. 28, 2018
Debt Instrument
Outstanding balance		$ 939,000	$ 501,000
Total shareholders' equity		33,619,000	35,112,000			$ 35,738,000	$ 35,366,000
Working capital		$ 24,278,000
Line of credit (LOC)
Debt Instrument
Percentage of floating interest rate payable		8.88%
Outstanding balance		$ 939,000	0
Line of credit (LOC) | BSBY
Debt Instrument
Spread on variable rate		4.00%
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 1.7955% - 1.8350% as of March 31, 2023)(B)
Debt Instrument
Outstanding balance		$ 0	491,000
Loan line of credit								$ 1,000,000
Lease term for equipment covered by lease line of credit		60 months
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 1.7955% - 1.8350% as of March 31, 2023)(B) | Maximum [Member]
Debt Instrument
Percentage of floating interest rate payable		1.835%
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 1.7955% - 1.8350% as of March 31, 2023)(B) | Minimum [Member]
Debt Instrument
Percentage of floating interest rate payable		1.7955%
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 1.8227% - 1.8690% at time of funding)
Debt Instrument
Outstanding balance		$ 0	10,000
Lease line of credit									$ 1,000,000
Lease term for equipment covered by lease line of credit		60 months
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 1.8227% - 1.8690% at time of funding) | Maximum [Member]
Debt Instrument
Percentage of floating interest rate payable		1.869%
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 1.8227% - 1.8690% at time of funding) | Minimum [Member]
Debt Instrument
Percentage of floating interest rate payable		1.8227%
Borrowing Base LOC
Debt Instrument
Maximum availability	$ 5,000,000
Borrowings base amount	$ 6,400,000
Percentage of floating interest rate payable	8.88%
Amount advanced for pledged deposit	$ 500,000
Additional fee	$ 300,000
Outstanding balance		$ 939,000	0
Borrowing Base LOC | Subsequent Event
Debt Instrument
Maximum availability				$ 1,000,000	$ 3,900,000
Borrowing Base LOC | BSBY
Debt Instrument
Spread on variable rate	4.00%
Equipment loans
Debt Instrument
Repayment of outstanding loans			$ 501,000

XML

Postretirement Benefit Plan (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Postretirement Benefit Plan
Future obligation of benefits	$ 4,085,000		$ 4,062,000
Benefit cost	$ 65,000	$ 69,000

XML

Shareholders' Equity - Summary of common shareholders' equity (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Shareholders' Equity
Beginning balance	$ 35,112,000	$ 35,366,000
Retirement benefits adjustment	13,000	22,000
Stock based compensation	41,000	25,000
Net (Loss)Income	(1,547,000)	325,000
Ending balance	33,619,000	35,738,000
Retained earnings
Shareholders' Equity
Beginning balance	23,741,000	25,858,000
Retirement benefits adjustment	0	0
Stock based compensation	0	0
Net (Loss)Income	(1,547,000)	325,000
Ending balance	22,194,000	26,183,000
Accumulated Other Comprehensive Loss
Shareholders' Equity
Beginning balance	(2,337,000)	(3,908,000)
Retirement benefits adjustment	13,000	22,000
Stock based compensation	0	0
Net (Loss)Income	0	0
Ending balance	(2,324,000)	(3,886,000)
Common Stock
Shareholders' Equity
Beginning balance	523,000	523,000
Retirement benefits adjustment	0	0
Stock based compensation	0	0
Net (Loss)Income	0	0
Ending balance	523,000	523,000
Capital in excess of par value
Shareholders' Equity
Beginning balance	14,556,000	14,500,000
Retirement benefits adjustment	0	0
Stock based compensation	17,000	2,000
Net (Loss)Income	0	0
Ending balance	14,573,000	14,502,000
ESOT
Shareholders' Equity
Beginning balance	(157,000)	(258,000)
Retirement benefits adjustment	0	0
Stock based compensation	0	0
Net (Loss)Income	0	0
Ending balance	(157,000)	(258,000)
Treasury stock
Shareholders' Equity
Beginning balance	(1,214,000)	(1,349,000)
Retirement benefits adjustment	0	0
Stock based compensation	24,000	23,000
Net (Loss)Income	0	0
Ending balance	$ (1,190,000)	$ (1,326,000)

XML

Shareholders' Equity - Share Repurchase Program (Details) - Share Repurchase Program - shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Shareholders' Equity
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	0	0

XML

Shareholders' Equity - 2012 Long-Term Incentive Plan (Details) - USD ($)			3 Months Ended
	Feb. 16, 2023	Aug. 15, 2022	Mar. 31, 2023	Mar. 31, 2022
Shareholders' Equity
Stock-based compensation expense related to the restrictive share awards			$ 55,000	$ 25,000
Restricted share awards
Shareholders' Equity
Compensation expense not yet recognized			$ 177,000
2012 Long-Term Incentive Plan | Non-employee directors
Shareholders' Equity
Number of restricted stock issued	725	11,345
Compensation expense not yet recognized	$ 7,808	$ 125,000

XML

Shareholders' Equity - Restricted stock activity (Details)	3 Months Ended
	Mar. 31, 2023 $ / shares shares
Restricted Share Activity:
Unvested at the beginning | shares	27,010
Granted | shares	725
Vested | shares	4,978
Unvested at the end | shares	22,757
Weighted Average Grant Date Fair Value
Unvested, beginning balance | $ / shares	$ 11.09
Granted | $ / shares	10.77
Vested | $ / shares	11.03
Unvested, ending balance | $ / shares	$ 11.09

XML

Shareholders' Equity - Calculation of earning per share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Shareholders' Equity
Net (Loss)Income	$ (1,547)	$ 325
Weighted average common shares outstanding (basic)	2,460	2,432
Unvested restricted stock	24	3
Weighted average common shares outstanding (diluted)	2,484	2,435
Basic
Net (loss) income per share	$ (0.63)	$ 0.13
Diluted
Net (loss) income per share	$ (0.63)	$ 0.13

XML

Litigation (Details)	3 Months Ended
	Mar. 31, 2023 USD ($)
Litigation
Damages sought value	$ 5,000,000
Insured amount	3,000,000
Retention amount	250,000
Excess coverage policy	3,000,000
Payment as retention from excess coverage policy	$ 1,000,000
Former CEO | Minimum
Litigation
Multiplier of severance Payment With Average Annual Compensation	2.99
Aero, Inc.
Litigation
Gain or loss on litigation	$ 0

XML

Business Segments - Summary of company's operations (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Business Segments
Revenues from unaffiliated customers	$ 10,802	$ 11,168
Cost of goods sold, inclusive of dep. and amort.	(9,887)	(8,211)
Gross profit (loss)	915	2,957
Operating expenses:
Selling, general and administrative	(2,826)	(2,501)
Operating (loss)/income	(1,911)	456
Other (expense)/income:
Interest expense	(53)	(70)
Gain on sale of equipment		26
Total other expense, net	(53)	(44)
(Loss)/income before income tax provision	(1,964)	412
Income tax benefit/(provision)	417	(87)
Net (loss)/income	(1,547)	325
Total Assets	45,849		$ 45,294
Operating Segments
Business Segments
Revenues from unaffiliated customers	10,802	11,168
Cost of goods sold, inclusive of dep. and amort.	(9,887)	(8,211)
Gross profit (loss)	$ 915	$ 2,957
Gross margin %	8.50%	26.50%
Operating expenses:
Selling, general and administrative	$ (2,826)	$ (2,501)
Total operating costs and expenses	(12,713)	(10,712)
Operating (loss)/income	1,911	(456)
Other (expense)/income:
Interest expense	(53)	(70)
Gain on sale of equipment		26
Total other expense, net	(53)	(44)
(Loss)/income before income tax provision	(1,964)	412
Income tax benefit/(provision)	417	(87)
Net (loss)/income	(1,547)	325
Total Assets	45,849	51,928
Capital expenditures	437	77
Foreign derived sales	2,086	2,999
Operating Segments | ATG
Business Segments
Revenues from unaffiliated customers	9,060	9,168
Cost of goods sold, inclusive of dep. and amort.	(8,076)	(6,496)
Gross profit (loss)	$ 984	$ 2,672
Gross margin %	10.90%	29.10%
Operating expenses:
Selling, general and administrative	$ (2,175)	$ (2,093)
Total operating costs and expenses	(10,251)	(8,589)
Operating (loss)/income	1,191	(579)
Other (expense)/income:
Interest expense	(53)	(70)
Gain on sale of equipment		26
Total other expense, net	(53)	(44)
(Loss)/income before income tax provision	(1,244)	535
Income tax benefit/(provision)	264	(113)
Net (loss)/income	(980)	422
Total Assets	36,096	42,382
Capital expenditures	302	77
Foreign derived sales	2,023	2,962
Operating Segments | CPG
Business Segments
Revenues from unaffiliated customers	1,742	2,000
Cost of goods sold, inclusive of dep. and amort.	(1,811)	(1,715)
Gross profit (loss)	$ (69)	$ 285
Gross margin %	(4.00%)	14.30%
Operating expenses:
Selling, general and administrative	$ (651)	$ (408)
Total operating costs and expenses	(2,462)	(2,123)
Operating (loss)/income	720	123
Other (expense)/income:
(Loss)/income before income tax provision	(720)	(123)
Income tax benefit/(provision)	153	26
Net (loss)/income	(567)	(97)
Total Assets	9,753	9,546
Capital expenditures	135
Foreign derived sales	$ 63	$ 37

XML

Business Segments (Details)	3 Months Ended
	Mar. 31, 2023 segment
Business Segments
Number of operating segments	2