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 June 30, 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 July 24, 2023
Common Stock, $.20 par value	2,496,211

INDEX

		Page No.
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	a)     Condensed Consolidated Balance Sheets, June 30, 2023 and December 31, 2022 (Reclassified)	3
	b)     Condensed Consolidated Statements of Operations for the three-and six-months ended June 30, 2023 and 2022	4
	c)     Condensed Consolidated Statements of Comprehensive Loss for the three-and six-months ended June 30, 2023 and 2022	5
	d)     Condensed Consolidated Statements of Cash Flows for the six-months ended June 30, 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	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
Forward-Looking Statements		30
Signatures		31

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SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	June 30,		December 31,
	2023		2022
	(Unaudited)		(Reclassified)
Current assets:
Cash	$	716	$	3,812
Cash, restricted		180		—
Accounts receivable, net		11,141		8,453
Inventories, net		15,098		14,286
Prepaid income taxes		139		138
Other current assets		996		477
Assets related to discontinued operation		4,174		9,528
Total current assets		32,444		36,694
Property, plant and equipment, net		7,242		7,355
Deferred income taxes, net		—		1,072
Other non-current assets		172		172
Total Assets	$	39,858	$	45,293
Liabilities and Shareholders’ Equity
Current liabilities:
Line of credit	$	3,697	$	—
Current portion of eqiupment financing and capital leases		—		501
Current portion of post retirement obligation		87		87
Accounts payable		2,904		1,840
Accrued employee compensation and benefits costs		1,358		1,057
Accrued warranty		579		581
Other accrued liabilities		290		394
Liabilities related to discontinued operation		2,763		1,745
Total current liabilities		11,678		6,205
Post retirement obligation		4,016		3,975
Shareholders’ equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,629,052 shares; outstanding 2,496,211 (2,483,318 - 2022) shares		524		523
Capital in excess of par value		14,587		14,556
Retained earnings		12,694		23,741
Accumulated other comprehensive loss		(2,312)		(2,336)
Employee stock ownership trust commitment		(157)		(157)
Treasury stock, at cost 91,570 (104,464 - 2022) shares		(1,172)		(1,214)
Total shareholders’ equity		24,164		35,113
Total Liabilities and Shareholders’ Equity	$	39,858	$	45,293

See notes to condensed consolidated financial statements

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SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($000’s omitted except per share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenue	$	10,649	$	8,749	$	19,709	$	17,916
Costs of goods sold, inclusive of depreciation and amortization		9,092		7,723		17,168		14,218
Gross profit		1,557		1,026		2,541		3,698
Operating expenses:
Selling, general and administrative		3,269		1,908		5,444		4,001
Total operating costs and expenses		12,361		9,631		22,612		18,219
Operating loss		(1,712)		(882)		(2,903)		(303)
Other (expense)/income:
Interest expense		(89)		(74)		(142)		(144)
Gain on sale of equipment		—		—		—		26
Total other expense, net		(89)		(74)		(142)		(118)
Loss from continuing operations before income taxes		(1,801)		(956)		(3,045)		(421)
Income tax (provision)/benefit		(1,479)		167		(1,063)		80
Loss from continuing operations		(3,280)		(789)		(4,108)		(341)
Loss from discontinued operation, net of tax (Note 2)		(6,220)		(21)		(6,940)		(144)
Net loss	$	(9,500)	$	(810)	$	(11,048)	$	(485)
Basic and diluted loss per share
Continuing operations	$	(1.33)	$	(0.32)	$	(1.67)	$	(0.14)
Discontinued operation		(2.53)		(0.01)		(2.82)		(0.06)
Basic and diluted loss per share	$	(3.86)	$	(0.33)	$	(4.49)	$	(0.20)

See notes to condensed consolidated financial statements

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SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

($000’s omitted)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net loss	$	(9,500)	$	(810)	$	(11,048)	$	(485)
Other comprehensive income items:
Actuarial gains		16		29		32		56
Income tax expense on actuarial losses		(4)		(7)		(7)		(12)
Other comprehensive income:
Retirement benefits adjustments, net of income taxes		12		22		25		44
Total comprehensive loss	$	(9,488)	$	(788)	$	(11,023)	$	(441)

See notes to condensed consolidated financial statements

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SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($000’s omitted)

(Unaudited)

	Six Months Ended
	June 30,
	2023		2022
Cash flows related to operating activities:
Loss from continuing operations	$	(4,108)	$	(341)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		517		485
Stock based compensation		74		67
Decrease in allowance for credit losses		(25)		(3)
Increase (decrease) in inventory reserve		14		(46)
Decrease in warranty reserve		(2)		(15)
Deferred income taxes		1,072		—
Gain on sale of equipment		—		(26)
Change in assets and liabilities:
Accounts receivable		(2,663)		(2,785)
Inventories		(826)		1,506
Prepaid income taxes		(1)		680
Other current assets		(519)		(488)
Accounts payable		1,064		995
Accrued employee compensation and benefit costs		301		(159)
Post retirement obligations		66		61
Other accrued liabilities		(105)		(5)
Net cash used in operating activities from continuing operations		(5,141)		(74)
Cash flows related to investing activities:
Capital expenditures - property, plant and equipment		(403)		(428)
Proceeds from sale of assets		—		38
Net cash used in investing activities from continuing operations		(403)		(390)
Cash flows related to financing activities:
Advances on line of credit, net of payments		3,697		—
Principal payments on long-term debt		—		(4,250)
Principal payments on equipment financing lease obligations		(501)		(140)
Net cash provided by (used in) financing activities from continuing operations		3,196		(4,390)
Discontinued Operation
Cash (used in) provided by operating activities		(568)		241
Net cash (used in) provided by operating activities from discontinued operation		(568)		241
Net decrease in cash and restricted cash		(2,916)		(4,613)
Cash and restricted cash at beginning of period		3,812		9,433
Cash and restricted cash at end of period	$	896	$	4,820

See notes to condensed consolidated financial statements

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.           Operations and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Servotronics, Inc. and its subsidiaries (the “Company”) 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.

The accompanying unaudited condensed consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

The accompanying consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three- and six-months ended June 30, 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.

The consolidated financial statements include the accounts of Servotronics, Inc. (the active legal entity under the ATG segment), The Ontario Knife Company (“OKC”, the active legal entity under the CPG segment) and other, inactive, wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

As communicated in the March 31, 2023 10-Q filing, the Company’s Board of Directors (the “Board”) authorized the review of strategic alternatives for the CPG segment. On April 18, 2023, the OKC business was listed for sale. On June 20, 2023, the Board approved for management to execute a letter of intent (LOI) to sell certain assets of OKC to a third party. On June 28, 2023, the LOI was executed. On July 10, 2023, the Company executed an Asset Purchase Agreement (“APA”) with the third party, and closed on this transaction on August 1, 2023. Management intends to wind down the OKC operations (the CPG business segment) during the second half of 2023.

Accordingly, the results of operations of OKC are presented as a “Loss from Discontinued Operation, net of tax” on the Condensed Consolidated Statements of Operations, and assets and liabilities are reflected as “Assets and Liabilities related to Discontinued Operation” in the Condensed Consolidated Balance Sheets. The “Loss from Discontinued Operation, net of tax” is included in the net loss on the Condensed Consolidated Statements of Comprehensive Loss, and the cash used by operating activities from the discontinued operation is included in the “Discontinued Operation” section of the Condensed Consolidated Statements of Cash Flows.

The 2022 financial information included in the aforementioned Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations were reclassified to conform with the discontinued operations presentation. Amounts for all periods discussed below reflect the results of operations, financial condition and cash flows from the Company’s continuing operations (ATG), unless otherwise noted. Refer to Note 2, Discontinued Operation and Assets and Liabilities Related to Discontinued Operation, for further discussion.

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Cash	$	716	$	3,812
Restricted cash		180		—
Total cash and restricted cash	$	896	$	3,812

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 restricted cash of $180,000 as of June 30, 2023 (no outstanding balance as of December 31, 2022) represents collateral with a financial institution. Refer to Note 5, Indebtedness, 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 $91,000 and $116,000 as of June 30, 2023 and December 31, 2022, respectively. The Company does not accrue interest on past due receivables.

The Company evaluated the accounting standards update related to the 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.

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2023, and December 31, 2022 under the guidance of ASC 460 the Company has recorded a warranty reserve of approximately $579,000 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 expected to be used in greater than two years are applied to the gross value of the inventory through a reserve of approximately $616,000 and $602,000 at June 30, 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 right-of-use (“ROU”) assets accounted for as finance leases. The estimated useful lives of depreciable properties are generally as follows:

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

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 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 June 30, 2023 and June 30, 2022. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of June 30, 2023 and December 31, 2022. The 2019 through 2022 federal and state tax returns remain subject to examination.

Supplemental Cash Flow Information

There were income tax refunds received of approximately $0 and $811,000 for the six-month period ended June 30, 2023 and 2022, respectively. Income taxes paid amounted to approximately $2,000 and $50,000 for the six-month period ended June 30, 2023 and 2022, respectively. Interest paid during the six-month period ended June 30, 2023 and 2022 amounted to approximately $46,000 and $66,000, respectively.

Employee Stock Ownership Plan

Contributions to the employee stock ownership plan are determined annually by the Company according to plan formula.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable based on undiscounted future operating cash flow analyses. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Due to the losses incurred, 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’s strategic decision to sell certain assets of OKC resulted in the classification of a discontinued operation and triggered an impairment of OKC’s real property as of June 30, 2023 in accordance with Accounting Standards Codification (“ASC”) 360-10-45-9 Impairment or Disposal of Long-Lived Assets. Refer to Note 2, Discontinued Operation and Assets and Liabilities Related to Discontinued Operation, for further discussion.

The Company has determined that no other impairment of long-lived assets existed as of June 30, 2023 and December 31, 2022, which primarily includes the Company’s tangible real (land and building) and personal (machinery & equipment) properties.

Reclassifications

Certain balances as previously reported were reclassified with classifications adopted in the current period.

Effective January 1, 2023 the ATG research and development and certain insurance expenditures of approximately $507,000 and $902,000 for the three- and six-months ended June 30, 2023 are reflected in selling, general and administrative operating expenses. Accordingly, approximately $333,000 and $652,000 for the three- and six-months ended June 30, 2022 was reclassified from cost of goods sold to selling, general and administrative for the same period in 2022. There was no impact to the Condensed Consolidated Statement of Operations due to the reclassification.

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Research and Development Costs

Research and development costs are expensed as incurred and are included in the selling, general and administrative expenses 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 assesses the risk of nonperformance by the financial institutions to be low.

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 asset-based line of credit the fair value approximates its carrying amount.

Recent Accounting Pronouncements Adopted

Effective January 1, 2023, the Company adopted the Accounting Standards 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 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.

2.           Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

As disclosed in Note 1, the Company’s decision to sell certain assets and wind down the operations of OKC met the “held for sale” criteria and represents a strategic shift that has a significant impact on the Company’s operations and financial results under ASC 205-20-45-9 Discontinued Operations. Therefore, the assets and liabilities of OKC are reflected as “Assets and Liabilities related to Discontinued Operation” in the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, respectively. The operating results, the loss on sale of assets, wind down costs, and impairment of long-lived assets were reclassified to “Loss from Discontinued Operation, net of tax” in the Condensed Consolidated Statements of Operations for the three- and six-months ended June 30, 2023 and June 30, 2022, respectively.

Under the terms of the APA, which closed on August 1, 2023, the Company sold inventory, machinery & equipment and intellectual property (patents & trademarks/tradenames) to the buyer for $2,100,000. In accordance with the sale, the Company evaluated whether the fair value of OKC assets sold, less estimated costs to sell, exceeded the net carrying value. The Company concluded that the net carrying value exceeded the fair value, less estimated costs to sell, resulting in an estimated impairment charge of approximately $3,223,000 for the CPG segment. This impairment charge is included in the Loss from Discontinued Operation as of June 30, 2023.

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SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In addition, as a direct result of selling OKC’s assets, management’s focus on winding down the OKC operations, and actively marketing the real property for sale during the third quarter of 2023, the Company incurred an impairment charge of approximately $1,098,000 related to the real property based on independent, third party appraisals (less estimated costs to sell). Estimated wind down costs of approximately $1,129,000, mostly included in other accrued liabilities caption within the table presented below, were recorded for customer collection reserves, key employee retention agreements, and supplier purchase orders currently in negotiations. This aggregate total of approximately $2,227,000 is included in the Loss from Discontinued Operation as of June 30, 2023.

OKC’s operating loss (prior to the discontinued operation classification) of approximately $770,000 and $21,000 for the three-month periods ended June 30, 2023 and 2022, respectively, is also included in the Loss from Discontinued Operation. OKC’s operating loss (prior to the discontinued operation classification) of approximately $1,490,000 and $144,000 for the six-month periods ended June 30, 2023 and 2022, respectively, is also included in the Loss from Discontinued Operation.

Based on the above, the Company’s total estimated Loss from Discontinued Operation, net of tax, is approximately $6,220,000 and $6,940,000 for the three- and six-months ended June 30, 2023 (approximately $21,000 and $144,000 for the three- and six-months ended June 30, 2022 as reclassified).

Discontinued Operation Financial Information

A summary of the results of operations classified as a discontinued operation, net of tax, in the Condensed Consolidated Statements of Operations, are as follows:

	Three Months Ended		Three Months Ended
	June 30, 2023		June 30, 2022
		($000’s omitted)
Net Sales	$	1,345	$	2,482
Operating costs		(2,115)		(2,503)
Loss from discontinued operation		(770)		(21)
Loss from discontinued operation - impairment and divestiture costs		(2,227)		—
Loss on sale of assets		(3,223)		—
Loss from discontinued operation before income taxes		(6,220)		(21)
Income tax benefit		—		—
Loss from discontinued operation, net of tax	$	(6,220)	$	(21)

	Six Months Ended		Six Months Ended
	June 30, 2023		June 30, 2022
	($000’s omitted)
Net Sales	$	3,087	$	4,482
Operating costs		(4,577)		(4,626)
Loss from discontinued operation		(1,490)		(144)
Loss from discontinued operation - impairment and divestiture costs		(2,227)		—
Loss on sale of assets		(3,223)		—
Loss from discontinued operation before income taxes		(6,940)		(144)
Income tax benefit		—		—
Loss from discontinued operation, net of tax	$	(6,940)	$	(144)

- 12 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Assets & Liabilities Related to Discontinued Operation Financial Information

A summary of the carrying amounts of major classes of assets and liabilities, which are included in assets and liabilities related to discontinued operation in the Condensed Consolidated Balance Sheets, are as follows:

	June 30, 2023		Dec 31, 2022
	($000’s omitted)
Accounts receivable, net	$	625	$	1,016
Prepaid assets		100		313
Inventories, net		1,598		4,766
Machinery and equipment, net		255		567
Patents and trademark, net		46		140
Building and improvements, net		1,550		2,726
Assets related to discontinued operation	$	4,174	$	9,528
Accounts payable	$	1,420	$	1,272
Accrued employee compensation and benefit costs		86		124
Other accrued liabilities		1,258		349
Liabilities related to discontinued operation	$	2,764	$	1,745

The OKC assets not being sold under the terms of the APA include accounts receivable, prepaid assets, and the building (total assets of $2,275,000 as of June 30, 2023). The Company retains and will liquidate these assets in conjunction with the wind down of the OKC operations. The accounts receivable of approximately $625,000 is net of a reserve for uncollectible accounts of approximately $170,000. In addition, the OKC liabilities not assumed under the terms of the APA include the accounts payable and accrued expenses totaling approximately $2,764,000 as of June 30, 2023.

3.           Inventories

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Raw material and common parts	$	11,686	$	10,703
Work-in-process		3,357		2,986
Finished goods		671		1,199
		15,714		14,888
Less inventory reserve		(616)		(602)
Total inventories	$	15,098	$	14,286

4.           Property, Plant and Equipment

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Buildings	$	8,337	$	7,838
Machinery, equipment and tooling		15,216		14,526
Construction in progress		217		1,002
		23,770		23,366
Less accumulated depreciation and amortization		(16,528)		(16,011)
Total property, plant and equipment	$	7,242	$	7,355

Depreciation and amortization expense amounted to approximately $260,000 and $241,000 for the three-months ended June 30, 2023 and 2022, respectively. Amortization expense primarily related to Right of Use (“ROU”) assets amounted to approximately $7,000 and $8,000 for the three months ended June 30, 2023 and 2022, respectively. Depreciation and amortization expense amounted to approximately $517,000 and $485,000 for the six-months ended June 30, 2023 and 2022, respectively. Amortization expense, primarily related to ROU assets, amounted to approximately $12,000 and $12,000 for the six-months ended June 30, 2023 and 2022, respectively.

- 13 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s ROU assets included in machinery, equipment and tooling had a net book value of approximately $172,000 as of June 30, 2023 ($185,000 as of December 31, 2022).

As of June 30, 2023, there is approximately $217,000 ($1,002,000 as of 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 $135,000 in CIP for machinery and equipment and approximately $82,000 for building improvements at the Advanced Technology Group.

5.           Indebtedness

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Line of credit payable to a financial institution; Interest rate is the greater of prime or 7% plus 1% per annum. (Interest rate 9.25% as of June 30, 2023) (A)	$	3,697	$	—
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 factor 1.79553% - 1.869304% at time of funding) (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 1.822758% - 1.869304% at time of funding) (C)		—		10
		3,697		501
Less current portion		(3,697)		(501)
Long term debt	$	—	$	—

A) On June 27, 2023, the Company entered into a three-year financing agreement with a financial lending institution for an asset-based line of credit (the “Credit Facility”) with a maximum revolving credit of $7,000,000. The borrowing base under the Credit Facility is determined using 85% of eligible domestic and international accounts receivable balances of the ATG segment, less any other specific reserves. In general terms, ineligible receivables are defined as invoices unpaid over 90 days. The interest rate on the credit facility is equal to the greater of prime rate (as defined by JP Morgan Chase Bank) or 7% plus 1% per annum. The Company capitalized approximately $104,000 of loan origination costs related to the Credit Facility, which is collateralized by the Company’s assets.

The balance outstanding of approximately $3,697,000 as of June 30, 2023 (no balance outstanding as of December 31, 2022) consists of the loan payoff with a financial institution of approximately $3,638,000 on June 28, 2023 (resulting from borrowings in 2023 under the terms of the line of credit with the financial institution), and Credit Facility closing fees of approximately $59,000. In conjunction with the loan payoff, $320,000 of the pledged deposit of $500,000 provided to the financial institution on March 30, 2023 was returned to the Company. The remaining balance of $180,000 remains pledged as collateral with the financial institution for the Company’s credit card program.

In accordance with ASC 470-10-45-5 Classification of Revolving Credit Agreements Subject to Lock-Box Arrangements and Subjective Acceleration Clauses, borrowings outstanding under the Credit Facility that includes both a subjective acceleration clause and requirement to maintain a lock-box arrangement must be considered short-term obligations. As the Credit Facility includes both of the provisions, the outstanding balance of $3,697,000 is classified as a current liability on the Condensed Consolidated Balance Sheet as of June 30, 2023.

The Credit Facility contains two financial covenants required to be maintained by the Company at the end of each of its fiscal quarters. The Tangible Net Worth covenant requires the Company to maintain tangible net worth not less than $20,000,000. The Working Capital covenant requires the Company to maintain working capital not less than $10,000,000. The Company has met both covenant requirements as of June 30, 2023.

Based on the current net losses, working capital needs, and the previous banking relationship, initial concerns were raised about the Company’s ability to meet obligations as they become due.  However, the net loss from continuing

- 14 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

operations was negatively impacted by significant, non-recurring SG&A expenses (see MD&A) and income tax expense (see Note 8), both of which have materially impacted net losses in 2023.  The net loss from discontinued operations (see Note 2) was primarily driven by impairment charges related to winding down the OKC operations and divesting the CPG segment.  Therefore, based on the disposal of the unprofitable CPG segment, the current forecasted revenue and customer backlog, continued production improvements and efficiencies, and the new Credit Facility, Management has concluded that substantial doubt about the Company’s ability to continue as a going concern is alleviated.

B) The Company had an equipment loan facility in the amount of $1,000,000 available until July 9, 2021. This line was non-revolving and non-renewable and the term 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 balance outstanding as of June 30, 2023 ($491,000 outstanding as of December 31, 2022).

C) The Company had a lease line of credit for equipment financing in the amount of $1,000,000 available until June 28, 2018. This line was non-revolving and non-renewable and the term 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 balance outstanding as of June 30, 2023 ($10,000 outstanding as of December 31, 2022).

6.            Postretirement Benefit Plan

The Company provides certain postretirement benefits for two former executives of the Company (the Plan). Under the Plan, the Company pays the annual cost of health insurance coverage and provides life insurance at the same level of coverage provided to the former employees at the time of termination of employment. The Plan also provides a benefit to reimburse the participants for certain out-of-pocket medical or health related expenses. The participants’ benefits under the Plan cease upon the death of the former executives. The Plan is unfunded and the actuarially determined future accumulated postretirement benefit obligation at June 30, 2023 and December 31, 2022 was approximately $4,103,000 and $4,062,000, respectively and has been accrued and reflected in Post Retirement Obligation in the accompanying consolidated balance sheets.

Benefit costs for the three-months ended June 30, 2023 and 2022 totaled $65,000 and $69,000, respectively. Benefit costs for the six months ended June 30, 2023 and 2022 totaled $130,000 and $138,000, respectively.

- 15 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.           Shareholders’ Equity

	Six-month Period Ended June 30, 2023
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		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
Retirement benefits adjustment		—		12		—		—		—		—		12
Stock based compensation		—		—		1		14		—		18		33
Net Loss		(9,500)		—		—		—		—		—		(9,500)
June 30, 2023	$	12,694	$	(2,312)	$	524	$	14,587	$	(157)	$	(1,172)	$	24,164

	Six-month Period Ended June 30, 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
Retirement benefits adjustment		—		22		—		—		—		—		22
Stock based compensation		—		—		—		7		—		35		42
Net Loss		(810)		—		—		—		—		—		(810)
June 30, 2022	$	25,373	$	(3,864)	$	523	$	14,509	$	(258)	$	(1,291)	$	34,992

The Company’s Board of Directors authorized the purchase of up to 450,000 shares of its common stock in the open market or in privately negotiated transactions. As of June 30, 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 six-month periods ended June 30, 2023 and 2022, respectively.

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 10,410 restricted shares were issued on June 9, 2023 with a grant date fair value of $125,000.

- 16 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Included in the six-month period ended June 30, 2023 and June 30, 2022 is approximately $74,000 and $67,000, respectively, of stock-based compensation expense related to the restrictive share awards. The Company has approximately $250,000 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	12,894	$	11.85
Vested in 2023	(11,701)	$	11.06
Unvested at June 30, 2023	28,203	$	11.45

Earnings Per Share

Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding, are considered forfeitable until the restrictions lapse and will not be included in the basic EPS calculation until the shares are vested. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on the earnings per share that were outstanding for the period. Incremental shares from assumed conversions are calculated as the number of shares that would be issued, net of the number of shares that could be purchased in the marketplace with the cash received upon stock option exercise. The dilutive effect of unvested restrictive stock is determined using the treasury stock method.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	($000’s omitted except per share data)
Loss from continuing operations	$	(3,280)	$	(789)	$	(4,108)	$	(341)
Loss from discontinued operation		(6,220)		(21)		(6,940)		(144)
Net loss	$	(9,500)	$	(810)	$	(11,048)	$	(485)
Weighted average common shares outstanding (basic)		2,461		2,432		2,458		2,435
Unvested restricted stock		28		7		28		7
Weighted average common shares outstanding (diluted)		2,489		2,439		2,486		2,442
Basic and diluted loss per share
Continuing operations	$	(1.33)	$	(0.32)	$	(1.67)	$	(0.14)
Discontinued operation		(2.53)		(0.01)		(2.82)		(0.06)
Basic and diluted earnings per share	$	(3.86)	$	(0.33)	$	(4.49)	$	(0.20)

8.           Income Taxes

The income tax expense in the Condensed Consolidated Statements of Operations is approximately $1,479,000 and $1,063,000 for the three and six-months ended June 30, 2023, respectively, compared to an income tax benefit of approximately $167,000 and $80,000 for the three- and six-months ended June 30, 2022, respectively. The tax expense is the result of recording a valuation allowance (tax expense) of approximately $3,182,000 during the second quarter against the net deferred tax assets (net of deferred tax liabilities) of $3,355,000 as of June 30, 2023 (valuation reserve of $173,000 was recorded against the net deferred tax assets of $1,245,000 as of December 31, 2022). The valuation allowance (tax expense) was recorded due to management determining that the potential exists that it is more likely than not that the Company will not realize the net deferred tax assets. Accordingly, no deferred tax assets are recorded on the consolidated balance sheet as of June 30, 2023.

The effective tax rate expense for the three-and six-month month period ended June 30, 2023, is 18.4% and 10.6%, respectively, compared to an effective tax rate benefit for the three-and six-month period ended June 30, 2022, of 17.1% and 14.2%, respectively. The difference between the statutory rate of 21% and the effective tax rate expense in 2023 is due to the recording of a valuation allowance against the net deferred tax asset (net of deferred tax liabilities) in 2023.

- 17 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.           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 is vigorously defending 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 in June 2021 pending an internal investigation. 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.

10.         Customer and Supplier Concentration

Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases.

During the six months ended June 30, 2023 and 2022, approximately 89% and 80%, respectively, were derived from the sale of ATG products to a small base of customers. During the six months ended June 30, 2023, approximately 12% of our purchases for ATG products were derived from one supplier (no significant suppliers for the six months ended June 30, 2022).

- 18 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.         Business Segments

The Company has operated historically under two business segments: Advanced Technology Group (“ATG”) and Consumer Products Group (“CPG”), which have been strategic business units that offer different products and services. Operations in ATG 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 included the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. The Company derives its primary sales revenue from domestic customers, although a portion of finished products are for foreign end use.

As disclosed in Note 1 and Note 2, the Company’s Board authorized the review of strategic alternatives for the CPG business segment and on July 10, 2023, the Company executed an APA with the third party to sell certain assets and wind down the operations of OKC (the CPG segment) during the second half of 2023. The Company closed on this transaction on August 1, 2023.

Accordingly, the OKC operations are now shown as a discontinued operation for reporting purposes. Therefore, the Company no longer has two business segments under continuing operations for reporting and disclosure purposes as of June 30, 2023.

- 19 -

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

As disclosed in the accompanying Condensed Consolidated Financial Statements, our Board of Directors authorized the review of strategic alternatives for the CPG business segment and on July 10, 2023, we executed an APA with the third party to sell certain assets and wind down the operations of OKC (the CPG business segment) during the second half of 2023. Therefore, the management discussion and analysis below pertain only the Advanced Technology Group (“ATG”), our continuing operations, unless otherwise noted.

Favorable to us, the aviation and aerospace industries are currently experiencing the expansion phases of their business cycles. However, they face evolving challenges on a global basis. Our ATG 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 products make it difficult to predict the impact on future financial results.

The ATG market is 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 through the quarter ended June 30, 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.

Our commercial business is affected by such factors as uncertainties in today’s global economy, global competition, the vitality and ability of the commercial aviation industry to purchase new aircraft, the effects and threats of terrorism, and market demand.

- 20 -

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. 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 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 continue strengthening and expanding our core competencies, while improving our margins and earnings by controlling costs in all aspects of our business.

Our strategy also included the decision to exit the CPG business segment during the second quarter of 2023. On July 10, 2023, the Company executed an Asset Purchase Agreement with the third party to sell significant assets of OKC, and the transaction was closed on August 1, 2023. Management plans to divest the CPG segment during the third quarter of 2023 and sell the real property. Exiting this business segment will allow us to focus solely on the ATG business to drive revenue growth, profitability, and shareholder value.

Results of Operations

The following table compares ATG’s statements of operations data for the three-months and six-months ended June 30, 2023 and 2022 ($000’s omitted):

	($000’s omitted)
	Three Months Ended
	June 30,
	2023					2022					2023 vs 2022
				% of					% of		Dollar		% Favorable
	Dollars			Sales		Dollars			Sales		Change		(Unfavorable)
Revenue	$	10,649		100.0	%	$	8,749		100.0	%	$	1,900	21.7	%
Cost of goods sold, inclusive of depreciation and amortization		(9,092)		85.4	%		(7,723)		88.3	%		(1,369)	(17.7)	%
Gross Margin		1,557		14.6	%		1,026		11.7	%		531	(51.8)	%
Gross margin %		14.6	%				11.7	%
Selling, general and administrative		(3,269)		30.7	%		(1,908)		21.8	%		(1,361)	(71.3)	%
Total operating costs and expenses		(12,361)		116.1	%		(9,631)		110.1	%		(2,730)	(28.3)	%
Operating loss		(1,712)		(16.1)	%		(882)		(10.1)	%		(830)	(94.1)	%
Other expenses:
Interest expense		(89)		(0.8)	%		(74)		(0.8)	%		(15)	(20.3)	%
Total other expenses, net		(89)		(0.8)	%		(74)		(0.8)	%		(15)	(20.3)	%
Loss before income taxes		(1,801)		(16.9)	%		(956)		(10.9)	%		(845)	(88.4)	%
Income tax (provision)/benefit		(1,479)		(13.9)	%		167		1.9	%		(1,646)	(985.6)	%
Loss from continuing operations	$	(3,280)		(30.8)	%	$	(789)		(9.0)	%	$	(2,491)	(315.7)	%

- 21 -

	($000’s omitted)
	Six Months Ended June 30,
	2023					2022					2023 vs 2022
				% of					% of		Dollar		% Favorable
	Dollars			Sales		Dollars			Sales		Change		(Unfavorable)
Revenue	$	19,709		100.0	%	$	17,916		100.0	%	$	1,793	10.0	%
Cost of goods sold, inclusive of depreciation and amortization		(17,168)		87.1	%		(14,218)		79.4	%		(2,950)	(20.7)	%
Gross Margin		2,541		12.9	%		3,698		20.6	%		(1,157)	(31.3)	%
Gross margin %		12.9	%				20.6	%
Selling, general and administrative		(5,444)		27.6	%		(4,001)		22.3	%		(1,443)	(36.1)	%
Total operating costs and expenses		(22,612)		114.7	%		(18,219)		101.7	%		(4,393)	(24.1)	%
Operating loss		(2,903)		(14.7)	%		(303)		(1.7)	%		(2,600)	(858.1)	%
Other income/(expenses):
Interest expense		(142)		(0.7)	%		(144)		(0.8)	%		2	1.4	%
Gain on sale of equipment		—		0.0	%		26		0.1	%		(26)	(100.0)	%
Total other income/(expenses), net		(142)		(0.7)	%		(118)		(0.7)	%		(24)	(20.3)	%
Loss before income taxes		(3,045)		(15.4)	%		(421)		(2.3)	%		(2,624)	(623.3)	%
Income tax (provision)/benefit		(1,063)		(5.4)	%		80		0.4	%		(1,143)	(1,428.8)	%
Loss from continuing operations	$	(4,108)		(20.8)	%	$	(341)		(1.9)	%	$	(3,767)	(1,104.7)	%

Revenue

The increase in revenue of approximately $1,900,000, or 22%, for the three-month period ended June 30, 2023 and approximately $1,793,000, or 10%, for the six-month period ended June 30, 2023 when compared to the same periods in 2022, are both primarily attributable higher customer prices and increased sales volumes, resulting from the continued post-COVID recovery and ramp up of the commercial aircraft market, which our customers’ systems directly support. In addition, our revenue has been positively impacted by higher service revenue due to a customer re-implementing their after-market program.

The revenue growth in 2023 was anticipated and is expected to continue based on our customers’ backlog, current demand and future forecasts. Management has been and remains committed to reducing production constraints in order to meet customer requests and support the significant revenue growth that has occurred in 2023 when compared to the same periods in 2022.

Gross Profit/Margin

Gross profit increased approximately $531,000, or 52%, for the three-month period ended June 30, 2023 when compared to the same period in 2022. The gross margin of 14.6% for the quarter ended June 30, 2023 was 2.9 percentage points higher than the margin of 11.7% for the same period in 2022. Gross profit benefited from the increased sales volumes, resulting in lower manufacturing costs and increased gross margins compared to the same period in 2022.

Gross profit decreased approximately $1,157,000, or (31%), for the six-month period ended June 30, 2023 when compared to the same period in 2022. The gross margin of 12.9% for the six- months ended June 30, 2023 was 7.7 percentage points lower than the margin of 20.6% for the same period in 2022. Although gross profit in 2023 benefited from the increased sales volumes, it was more than offset by unfavorable product mix, resulting in higher costs and lower gross margins when compared to the second quarter of 2022.

As noted in the first quarter, research and development (R&D) and certain insurance expenditures were reclassified from cost of goods sold to selling, general and administrative expenses, effective January 1, 2023. For the three- and six-month periods ended June 30, 2023, the reclassifications were approximately $507,000 and $902,000, respectively, as compared to the reclassified amounts of approximately $333,000 and $652,000, respectively, for the same periods in 2022. There was no impact to the Condensed Consolidated Statement of Operations due to the reclassification.

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In addition to achieving significant topline growth in 2023, our business transformation strategic objective includes implementing continuous improvement, value stream and lean initiatives to create more efficient production processes to improve product flow, reduce the amount of work-in-process, and scrap inventory, leading to increased production output and reduced customer lead times and reduced backlog.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) for the three-month period ended June 30, 2023 of $3,269,000 increased approximately $1,361,000, or 71%, when compared to SG&A expenses of $1,908,000 during the same period in 2022. This significant increase is primarily due to non-recurring expenses of approximately $973,000 in 2023 that did not occur during the same period in 2022, and increased R&D and insurance expenses when compared to the same period in 2022.

Selling, general and administrative expenses (SG&A) for the six-month period ended June 30, 2023 of $5,444,000 increased approximately $1,443,000, or 36%, when compared to SG&A expenses of $4,001,000 during the same period in 2022. This significant increase is primarily due to significant, non-recurring expenses of approximately $1,174,000 in 2023 listed in the table below that did not occur during the same period in 2022, and increased R&D and insurance expenses when compared to the same period in 2022.

The table below summarizes the significant SG&A expense increases incurred by the Company in 2023:

	Three Months Ended		Six Month Ended
	June 30, 2023		June 30, 2023
	($000’s omitted)
Bank liquidity/refinancing costs	$	504	$	621
Proxy contest costs		184		242
OKC sale of assets - consulting costs		88		114
Corporate restructing costs		197		197
Total non-recurring costs		973		1,174
Insurance/R&D costs reclassed from COGS		174		250
Other costs		214		19
Increase in SG&A expense for 2023	$	1,361	$	1,443

Due to the significant increases above, the SG&A expenses as a percentage of revenue is higher for the three-and six-month periods ended June 30, 2023 when compared to the same periods in 2022. Management expected an increase in expenses based on the bank refinancing as noted in the first quarter 10-Q, however, the fees paid to the financial institution’s consultant were higher than anticipated. Also, we were heavily involved in a proxy contest that, although it had a favorable outcome, resulted in incremental costs when compared to the same period in 2022. The Corporate restructuring costs are due primarily to severance costs. Although significant to the three- and six-month periods ended June 30, 2023, these costs will not continue into the second half of 2023, therefore, SG&A expenses as a percentage of revenue will be more aligned with historical results.

Operating Loss

Operating Loss of ($1,712,000) for the three-month period ended June 30, 2023 increased approximately by ($830,000) when comparing to the loss from continuing operations of ($882,000) during the same period in 2022, as the improvement in gross profit of $531,000 was more than offset by the increase in SG&A expenses of $1,361,000 as noted above.

Operating Loss of ($2,903,000) for the six-month period ended June 30, 2023 increased approximately by ($2,600,000) when comparing to the loss from continuing operations of ($303,000) during the same period in 2022, driven by the lower gross profit of $1,157,000 and increased SG&A expenses of $1,443,000 as noted above.

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Interest Expense

Interest expense increased by approximately $15,000, or 20%, for the three-month period ended June 30, 2023 when compared to the same period in 2022 due to the increase in funding from the line of credit that has occurred in 2023. Interest expense for the six-month period ended June 30, 2023 is consistent with the same period in 2022. See also Note 5, Indebtedness, of the accompanying condensed consolidated financial statements for information on the our outstanding debt.

Loss before Income Taxes

Loss before income taxes of ($1,801,000) for the three-month period ended June 30, 2023 increased approximately ($845,000) when compared to the loss before income taxes of ($956,000) during the same period in 2022, driven by higher SG&A expenses and partially offset by the improvement in gross profit.

Loss before income taxes of ($3,045,000) for the six-month period ended June 30, 2023 increased approximately ($2,624,000) when compared to the loss before income taxes of ($421,000) during the same period in 2022, driven by lower gross profit and higher SG&A expenses.

Income Taxes

Income tax expense of approximately $1,479,000 for three-month period ended June 30, 2023 increased approximately $1,646,000 when compared to the income tax benefit of ($167,000) during the same period in 2022. Income tax expense of approximately $1,063,000 for six-month period ended June 30, 2023 increased approximately $1,143,000 when compared to the income tax benefit of ($80,000) during the same period in 2022.

The significantly higher tax expense in the three and six-month period ended June 30, 2023 compared to tax benefits for the same periods in 2022 was the result of recording a valuation allowance (tax expense) of $3,182,000 against the net deferred tax assets of approximately $3,355,000 as of June 30, 2023. The allowance was based on management’s determination that the potential exists that it is more likely than not the Company will not realize the net deferred tax assets. Accordingly, no deferred tax assets are recorded on the consolidated balance sheet as of June 30, 2023.

Loss from Continuing Operations

Loss from continuing operations of ($3,280,000) for the three-month period ended June 30, 2023 increased approximately ($2,491,000) when compared to the net loss of ($789,000) for the same period in 2022 due to the reasons noted above. Loss from continuing operations of ($4,108,000) for the six-month period ended June 30, 2023 increased approximately ($3,767,000) when compared to the net loss of ($341,000) for the same period in 2022 due to the reasons noted above.

Loss from Discontinued Operation

Loss from discontinued operation of ($6,220,000) for the three-month period ended June 30, 2023 ($21,000 for the same period in 2022) and ($6,940,000) for the six-month period ended June 30, 2023 ($144,000 for the same period in 2022) represents the loss on sale of certain assets of OKC, estimated costs associated with discontinuing and winding down the OKC operations and divesting the CPG business, impairment charges related to OKC’s real property, and operating losses for the three- and six-month periods ended June 30, 2023.

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Liquidity and Capital Resources

	Six months ended June 30,
($000’s omitted)	2023		2022
CASH FLOW DATA:
Net Cash Flows from:
Operating Activities	$	(5,141)	$	(74)
Investing Activities	$	(403)	$	(390)
Financing Activities	$	3,196	$	(4,390)
Discontinued Operation	$	(568)	$	241
FINANCIAL POSITION:
Working Capital	$	20,766	$	29,548
Long-term Debt	$	—	$	381
CAPITAL EXPENDITURES (1):	$	(403)	$	(428)

(1) NET OF PROCEEDS FROM SALE OF EQUIPMENT

Operating Activities:

We used approximately $5,141,000 in cash from operations during the six-month period ended June 30, 2023 and used approximately $74,000 for the same period in 2022. The use of cash in 2023 is due primarily to the loss from continuing operations of $4,108,000, and the significant increase in accounts receivable of $2,663,000 due to the 18% growth in revenue from the first quarter to second quarter of 2023. This use of cash was partially offset by the source of cash related to the increase in accounts payable by $1,064,000 and a non-cash decrease in deferred income taxes by $1,072,000.

We had working capital of approximately $20,766,000 and $29,548,000 at June 30, 2023 and June 30, 2022, respectively, of which approximately $896,000 and $4,820,000 at June 30, 2023 and June 30, 2022, respectively, was comprised of cash and restricted cash. The reduction in working capital in 2023 is due primarily to the cash used to fund operating losses and the impairment of assets resulting from the sale of assets and discontinued operation of OKC.

Our new Credit Facility of $7,000,000 as of June 27, 2023, which represents an increase in the borrowing base of $3,100,000 compared to the previous financial institution’s line of credit of $3,900,000 effective June 29, 2023, provides us with the adequate capital needed to run our operations and reinvest in our business. 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.

Investing Activities:

We used approximately $403,000 in cash from investing activities during the six-month period ended June 30, 2023 and used approximately $390,000 during the same period in 2022. The investing activities were primarily for machinery and equipment and building improvements.

Financing Activities:

Our primary source of cash in our financing activities of approximately $3,196,000 during the six-month period ended June 30, 2023 results primarily from funding received on our Credit Facility of $3,638,000 to payoff the loan with the previous lender on June 28, 2023, net of principal payments on equipment financing obligations of approximately $501,000. Our primary use of cash in our financing activities of approximately $4,390,000 in the six-month period ended June 30, 2022 was due to the repayment on the line of credit with the previous lender of $4,250,000 and principal payments on equipment financing obligations of approximately $140,000.

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Ongoing Liquidity Considerations

We have incurred a significant net loss in 2023, which may raise doubt about our ability to continue as a going concern. However, the net loss from continuing operations was negatively impacted by non-recurring SG&A expenses and a non-cash increase to income tax expense (see Note 8), both of which significantly impacted our net losses in 2023. The net loss from discontinued operations (see Note 2) was primarily driven by non-cash impairment charges, as we expect the proceeds from the sale of assets will offset the cash expenditures required to wind down the OKC operations and divest the CPG segment. Therefore, based on the disposal of the unprofitable CPG segment, the current forecasted revenue and customer backlog, continued production improvements and efficiencies, and the new Credit Facility that was secured during the quarter, management has concluded that substantial doubt about the Company’s ability to continue as a going concern is alleviated.

Management Summary

The losses incurred in the fourth quarter of 2022 and in first quarter of 2023 were predominately driven by management’s decision to maintain our experienced and knowledgeable workforce during the pandemic years and hire ahead of expected higher customer demand. We have experienced growing customer demand since the middle of 2022, causing an increase in inventory purchases and higher usages of cash during this time period. We have seen the positive affect of our investments in the workforce through our revenue growth in 2023. Based on the customer backlog and current demand, production improvements and increased output, we expect revenue for the second half of 2023 to be higher compared to the $19,709,000 for the six-months ended June 30, 2023.

In addition to achieving significant topline growth in 2023, our business transformation strategic objective has included implementing continuous improvement and lean initiatives to create more efficient production processes to improve product flow and reduce the amount of work-in-process and scrap inventory, which has resulted in higher gross profit and margins compared to the prior two quarters. We anticipate the gross profit and margins to continue improving for the second half of 2023.

Included in our operating expenses, we have incurred significantly higher, non-recurring SG&A expenses of approximately $973,000 during the three months ended June 30, 2023 and $1,174,000 for the six months ended June 30, 2023, related primarily to bank refinancing, proxy contest, and corporate restructuring costs. Excluding these incremental costs, total operating expenses (as a % of revenue) was comparable to the same periods in 2022. We remain focused on sustaining operating expenses more aligned with historical results.

As communicated, we made the decision to sell certain assets and discontinue the operations of OKC during second half of 2023. The OKC operations were not profitable, having incurred historical losses including the loss of $1,490,000 for the six months ended June 30, 2023. Discontinuing the OKC business and divesting the CPG business segment, which were completely unrelated to and lacked synergies with our core, servo control business, will allow us to focus on driving topline growth, improving margins through production efficiencies, generating profits, and ultimately, enhancing shareholder value.

Finally, we incurred significant tax expense of approximately $1,479,000 for the three months ended June 30, 2023 and $1,063,000 for the six months ended June 30, 2023 related to the establishment of a full valuation reserve against our deferred tax assets, resulting in no recognition of these assets on our balance sheet as of June 30, 2023. Our decision was driven by the loss from continuing and discontinued operations during the second quarter of 2023, which significantly increased the amount of net operating losses included in the deferred tax assets. Although a significant impact to the operating results in 2023, we believe that our continued operating improvements will generate profits and allow the reversal of the valuation reserve and utilize the net operating loss carryforwards against future taxable income.

Non-GAAP Measures

Adjusted SG&A Expenses, Adjusted Operating Loss and Adjusted Operating Margin are provided for information purposes only and are not measures of financial performance under GAAP.

- 26 -

We believe the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating our operating results distinct from results that include certain non-recurring items that are not indicative of our core operating performance. These non-GAAP disclosures have limitations as analytical tools, should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to net operating income (loss) determined in accordance with GAAP.

We have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. We encourage readers to rely upon the GAAP numbers, but include the non-GAAP financial measures as supplemental metrics to assist readers to illustrate the operating improvements made in 2023 from our growth in revenue, improvement in gross profit/margins, and lower adjusted operating losses. See the reconciliation below:

(000’s omitted)	Three Months Ended
	June 30, 2023			Mar 31, 2023			Dec 31, 2022
Revenue	$	10,649		$	9,060		$	8,446
Cost of goods sold		9,092			8,072			8,212
Gross Profit		1,557			988			234
Gross Margin		14.6	%		10.9	%		2.8	%
SG&A Expenses		3,269			2,179			1,702
Less: Nonrecurring Expenses		(973)			(201)			—
Adjusted SG&A Expenses		2,296			1,978			1,702
as a % of Revenue		21.6	%		21.8	%		20.2	%
Operating Loss		(1,712)			(1,192)			(1,468)
Less: Nonrecurring Expenses		(973)			(201)			—
Adjusted Operating Loss	$	(739)		$	(991)		$	(1,468)
Adjusted Operating Margin		(6.9)	%		(10.9)	%		(17.4)	%

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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.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

The Company carried out an evaluation under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) as of June 30, 2023. Based upon that evaluation, the CEO and CFO 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 years ended December 31, 2021 and 2022, management identified certain control deficiencies that, individually and 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 improvement of its risk assessment and documentation over the monitoring of internal controls. The remediation will be completed for the year ended December 31, 2023. 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 condensed 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.

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PART II

OTHER INFORMATION

Item 1.  Legal Proceedings

Except as set forth in Note 9, Litigation, there are no other legal proceedings which are material to the Company currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to materially adversely affect the business or earnings of the Company.

Item 1A.  Risk Factors

Not applicable.

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

The Company’s Board of Directors authorized the purchase of up to 450,000 shares of its common stock in the open market or in privately negotiated transactions. As of June 30, 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 six-month period ended June 30, 2023.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

(c) Trading Plans

During the three months ended June 30, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

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 Chief Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
101	The following materials from Servotronics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows and (v) the notes to the consolidated financial statements.

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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 report, 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.

- 30 -

SIGNATURES

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

Date: August 10, 2023

SERVOTRONICS, INC.
By:	/s/ William F. Farrell, Jr., Chief Executive Officer
	William F. Farrell, Jr.
	Chief Executive Officer
By:	/s/ Robert A. Fraass, Chief Financial Officer
	Robert A. Fraass
	Chief Financial Officer

- 31 -

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: August 10, 2023
	/s/ William F. Farrell, Jr., Chief Executive Officer
	William F. Farrell, Jr.
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Robert A. Fraass, certify that:

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

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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

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

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

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

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

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

Date: August 10, 2023
	/s/ Robert A. Fraass, Chief Financial Officer
	Robert A. Fraass
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Servotronics, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 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: August 10, 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 June 30, 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: August 10, 2023
	/s/Robert A. Fraass, Chief Financial Officer
	Robert A. Fraass
	Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2023	Jul. 24, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2023
Document Transition Report	false
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
Trading Symbol	SVT
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		2,496,211
Entity Central Index Key	0000089140
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q2
Amendment Flag	false
Document Fiscal Year Focus	2023

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Current assets:
Cash	$ 716,000	$ 3,812,000
Cash, restricted	180,000	0
Accounts receivable, net	11,141,000	8,453,000
Inventories, net	15,098,000	14,286,000
Prepaid income taxes	139,000	138,000
Other current assets	996,000	477,000
Assets related to discontinued operation	4,174,000	9,528,000
Total current assets	32,444,000	36,694,000
Property, plant and equipment, net	7,242,000	7,355,000
Deferred income taxes, net		1,072,000
Other non-current assets	172,000	172,000
Total Assets	39,858,000	45,293,000
Current liabilities:
Line of credit	3,697,000
Current portion of equipment financing and capital leases		501,000
Current portion of post retirement obligation	87,000	87,000
Accounts payable	2,904,000	1,840,000
Accrued employee compensation and benefits costs	1,358,000	1,057,000
Accrued warranty	579,000	581,000
Other accrued liabilities	290,000	394,000
Liabilities related to discontinued operation	2,763,000	1,745,000
Total current liabilities	11,678,000	6,205,000
Post retirement obligation	4,016,000	3,975,000
Shareholders' equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,629,052 shares; outstanding 2,496,211 (2,483,318 - 2022) shares	524,000	523,000
Capital in excess of par value	14,587,000	14,556,000
Retained earnings	12,694,000	23,741,000
Accumulated other comprehensive loss	(2,312,000)	(2,336,000)
Employee stock ownership trust commitment	(157,000)	(157,000)
Treasury stock, at cost 91,570 (104,464 - 2022) shares	(1,172,000)	(1,214,000)
Total shareholders' equity	24,164,000	35,113,000
Total Liabilities and Shareholders' Equity	$ 39,858,000	$ 45,293,000

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares	Jun. 30, 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	2,496,211	2,483,318
Treasury stock, shares	91,570	104,464

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue	$ 10,649,000	$ 8,749,000	$ 19,709,000	$ 17,916,000
Costs and expenses:
Costs of goods sold, inclusive of depreciation and amortization	9,092,000	7,723,000	17,168,000	14,218,000
Gross profit	1,557,000	1,026,000	2,541,000	3,698,000
Operating expenses:
Selling, general and administrative	3,269,000	1,908,000	5,444,000	4,001,000
Total operating costs and expenses	12,361,000	9,631,000	22,612,000	18,219,000
Operating loss	(1,712,000)	(882,000)	(2,903,000)	(303,000)
Other (expense)/income:
Interest expense	(89,000)	(74,000)	(142,000)	(144,000)
Gain on sale of equipment				26,000
Total other expense, net	(89,000)	(74,000)	(142,000)	(118,000)
Loss from continuing operations before income taxes	(1,801,000)	(956,000)	(3,045,000)	(421,000)
Income tax (provision)/benefit	(1,479,000)	167,000	(1,063,000)	80,000
Loss from continuing operations	(3,280,000)	(789,000)	(4,108,000)	(341,000)
Loss from discontinued operation, net of tax	(6,220,000)	(21,000)	(6,940,000)	(144,000)
Net loss	$ (9,500,000)	$ (810,000)	$ (11,048,000)	$ (485,000)
Basic
Continuing operations	$ (1.33)	$ (0.32)	$ (1.67)	$ (0.14)
Discontinued operation	(2.53)	(0.01)	(2.82)	(0.06)
Net income per share	(3.86)	(0.33)	(4.49)	(0.20)
Diluted
Continuing operations	(1.33)	(0.32)	(1.67)	(0.14)
Discontinued operation	(2.53)	(0.01)	(2.82)	(0.06)
Net income per share	$ (3.86)	$ (0.33)	$ (4.49)	$ (0.20)

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Net loss	$ (9,500)	$ (810)	$ (11,048)	$ (485)
Other comprehensive income items:
Actuarial gains	16	29	32	56
Income tax expense on actuarial losses	(4)	(7)	(7)	(12)
Other comprehensive income:
Retirement benefits adjustments, net of income taxes	12	22	25	44
Total comprehensive loss	$ (9,488)	$ (788)	$ (11,023)	$ (441)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Cash flows related to operating activities:
Loss from continuing operations	$ (4,108,000)	$ (341,000)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	517,000	485,000
Stock based compensation	74,000	67,000
Decrease in allowance for credit losses	(25,000)	(3,000)
Increase (decrease) in inventory reserve	14,000	(46,000)
Decrease in warranty reserve	(2,000)	(15,000)
Deferred income taxes	1,072,000
Gain on sale of equipment		(26,000)
Change in assets and liabilities:
Accounts receivable	(2,663,000)	(2,785,000)
Inventories	(826,000)	1,506,000
Prepaid income taxes	(1,000)	680,000
Other current assets	(519,000)	(488,000)
Accounts payable	1,064,000	995,000
Accrued employee compensation and benefit costs	301,000	(159,000)
Post retirement obligations	66,000	61,000
Other accrued liabilities	(105,000)	(5,000)
Net cash used in operating activities from continuing operations	(5,141,000)	(74,000)
Cash flows related to investing activities:
Capital expenditures - property, plant and equipment	(403,000)	(428,000)
Proceeds from sale of assets		38,000
Net cash used by investing activities	(403,000)	(390,000)
Cash flows related to financing activities:
Advances on line of credit, net of payments	3,697,000
Principal payments on long-term debt		(4,250,000)
Principal payments on equipment financing lease obligations	(501,000)	(140,000)
Net cash provided (used) by financing activities	3,196,000	(4,390,000)
Discontinued Operation
Cash (used in) provided by operating activities	(568,000)	241,000
Net cash (used in) provided by operating activities from discontinued operation	(568,000)	241,000
Net decrease in cash and restricted cash	(2,916,000)	(4,613,000)
Cash and restricted cash at beginning of period	3,812,000	9,433,000
Cash and restricted cash at end of period	$ 896,000	$ 4,820,000

XML

Operations and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2023

Operations and Summary of Significant Accounting Policies

Operations and Summary of Significant Accounting Policies

1.           Operations and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Servotronics, Inc. and its subsidiaries (the “Company”) 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.

The accompanying unaudited condensed consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

The accompanying consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three- and six-months ended June 30, 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.

The consolidated financial statements include the accounts of Servotronics, Inc. (the active legal entity under the ATG segment), The Ontario Knife Company (“OKC”, the active legal entity under the CPG segment) and other, inactive, wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

As communicated in the March 31, 2023 10-Q filing, the Company’s Board of Directors (the “Board”) authorized the review of strategic alternatives for the CPG segment. On April 18, 2023, the OKC business was listed for sale. On June 20, 2023, the Board approved for management to execute a letter of intent (LOI) to sell certain assets of OKC to a third party. On June 28, 2023, the LOI was executed. On July 10, 2023, the Company executed an Asset Purchase Agreement (“APA”) with the third party, and closed on this transaction on August 1, 2023. Management intends to wind down the OKC operations (the CPG business segment) during the second half of 2023.

Accordingly, the results of operations of OKC are presented as a “Loss from Discontinued Operation, net of tax” on the Condensed Consolidated Statements of Operations, and assets and liabilities are reflected as “Assets and Liabilities related to Discontinued Operation” in the Condensed Consolidated Balance Sheets. The “Loss from Discontinued Operation, net of tax” is included in the net loss on the Condensed Consolidated Statements of Comprehensive Loss, and the cash used by operating activities from the discontinued operation is included in the “Discontinued Operation” section of the Condensed Consolidated Statements of Cash Flows.

The 2022 financial information included in the aforementioned Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations were reclassified to conform with the discontinued operations presentation. Amounts for all periods discussed below reflect the results of operations, financial condition and cash flows from the Company’s continuing operations (ATG), unless otherwise noted. Refer to Note 2, Discontinued Operation and Assets and Liabilities Related to Discontinued Operation, for further discussion.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Cash	$	716	$	3,812
Restricted cash		180		—
Total cash and restricted cash	$	896	$	3,812

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 restricted cash of $180,000 as of June 30, 2023 (no outstanding balance as of December 31, 2022) represents collateral with a financial institution. Refer to Note 5, Indebtedness, 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 $91,000 and $116,000 as of June 30, 2023 and December 31, 2022, respectively. The Company does not accrue interest on past due receivables.

The Company evaluated the accounting standards update related to the 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 June 30, 2023, and December 31, 2022 under the guidance of ASC 460 the Company has recorded a warranty reserve of approximately $579,000 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 expected to be used in greater than two years are applied to the gross value of the inventory through a reserve of approximately $616,000 and $602,000 at June 30, 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 right-of-use (“ROU”) assets accounted for as finance leases. The estimated useful lives of depreciable properties are generally as follows:

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

Income Taxes

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 June 30, 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 June 30, 2023 and June 30, 2022. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of June 30, 2023 and December 31, 2022. The 2019 through 2022 federal and state tax returns remain subject to examination.

Supplemental Cash Flow Information

There were income tax refunds received of approximately $0 and $811,000 for the six-month period ended June 30, 2023 and 2022, respectively. Income taxes paid amounted to approximately $2,000 and $50,000 for the six-month period ended June 30, 2023 and 2022, respectively. Interest paid during the six-month period ended June 30, 2023 and 2022 amounted to approximately $46,000 and $66,000, respectively.

Employee Stock Ownership Plan

Contributions to the employee stock ownership plan are determined annually by the Company according to plan formula.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable based on undiscounted future operating cash flow analyses. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Due to the losses incurred, 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’s strategic decision to sell certain assets of OKC resulted in the classification of a discontinued operation and triggered an impairment of OKC’s real property as of June 30, 2023 in accordance with Accounting Standards Codification (“ASC”) 360-10-45-9 Impairment or Disposal of Long-Lived Assets. Refer to Note 2, Discontinued Operation and Assets and Liabilities Related to Discontinued Operation, for further discussion.

The Company has determined that no other impairment of long-lived assets existed as of June 30, 2023 and December 31, 2022, which primarily includes the Company’s tangible real (land and building) and personal (machinery & equipment) properties.

Reclassifications

Certain balances as previously reported were reclassified with classifications adopted in the current period.

Effective January 1, 2023 the ATG research and development and certain insurance expenditures of approximately $507,000 and $902,000 for the three- and six-months ended June 30, 2023 are reflected in selling, general and administrative operating expenses. Accordingly, approximately $333,000 and $652,000 for the three- and six-months ended June 30, 2022 was reclassified from cost of goods sold to selling, general and administrative 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 expenses 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 assesses the risk of nonperformance by the financial institutions to be low.

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 asset-based line of credit the fair value approximates its carrying amount.

Recent Accounting Pronouncements Adopted

Effective January 1, 2023, the Company adopted the Accounting Standards 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 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

Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

6 Months Ended

Jun. 30, 2023

Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

2.           Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

As disclosed in Note 1, the Company’s decision to sell certain assets and wind down the operations of OKC met the “held for sale” criteria and represents a strategic shift that has a significant impact on the Company’s operations and financial results under ASC 205-20-45-9 Discontinued Operations. Therefore, the assets and liabilities of OKC are reflected as “Assets and Liabilities related to Discontinued Operation” in the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, respectively. The operating results, the loss on sale of assets, wind down costs, and impairment of long-lived assets were reclassified to “Loss from Discontinued Operation, net of tax” in the Condensed Consolidated Statements of Operations for the three- and six-months ended June 30, 2023 and June 30, 2022, respectively.

Under the terms of the APA, which closed on August 1, 2023, the Company sold inventory, machinery & equipment and intellectual property (patents & trademarks/tradenames) to the buyer for $2,100,000. In accordance with the sale, the Company evaluated whether the fair value of OKC assets sold, less estimated costs to sell, exceeded the net carrying value. The Company concluded that the net carrying value exceeded the fair value, less estimated costs to sell, resulting in an estimated impairment charge of approximately $3,223,000 for the CPG segment. This impairment charge is included in the Loss from Discontinued Operation as of June 30, 2023.

In addition, as a direct result of selling OKC’s assets, management’s focus on winding down the OKC operations, and actively marketing the real property for sale during the third quarter of 2023, the Company incurred an impairment charge of approximately $1,098,000 related to the real property based on independent, third party appraisals (less estimated costs to sell). Estimated wind down costs of approximately $1,129,000, mostly included in other accrued liabilities caption within the table presented below, were recorded for customer collection reserves, key employee retention agreements, and supplier purchase orders currently in negotiations. This aggregate total of approximately $2,227,000 is included in the Loss from Discontinued Operation as of June 30, 2023.

OKC’s operating loss (prior to the discontinued operation classification) of approximately $770,000 and $21,000 for the three-month periods ended June 30, 2023 and 2022, respectively, is also included in the Loss from Discontinued Operation. OKC’s operating loss (prior to the discontinued operation classification) of approximately $1,490,000 and $144,000 for the six-month periods ended June 30, 2023 and 2022, respectively, is also included in the Loss from Discontinued Operation.

Based on the above, the Company’s total estimated Loss from Discontinued Operation, net of tax, is approximately $6,220,000 and $6,940,000 for the three- and six-months ended June 30, 2023 (approximately $21,000 and $144,000 for the three- and six-months ended June 30, 2022 as reclassified).

Discontinued Operation Financial Information

A summary of the results of operations classified as a discontinued operation, net of tax, in the Condensed Consolidated Statements of Operations, are as follows:

	Three Months Ended		Three Months Ended
	June 30, 2023		June 30, 2022
		($000’s omitted)
Net Sales	$	1,345	$	2,482
Operating costs		(2,115)		(2,503)
Loss from discontinued operation		(770)		(21)
Loss from discontinued operation - impairment and divestiture costs		(2,227)		—
Loss on sale of assets		(3,223)		—
Loss from discontinued operation before income taxes		(6,220)		(21)
Income tax benefit		—		—
Loss from discontinued operation, net of tax	$	(6,220)	$	(21)

	Six Months Ended		Six Months Ended
	June 30, 2023		June 30, 2022
	($000’s omitted)
Net Sales	$	3,087	$	4,482
Operating costs		(4,577)		(4,626)
Loss from discontinued operation		(1,490)		(144)
Loss from discontinued operation - impairment and divestiture costs		(2,227)		—
Loss on sale of assets		(3,223)		—
Loss from discontinued operation before income taxes		(6,940)		(144)
Income tax benefit		—		—
Loss from discontinued operation, net of tax	$	(6,940)	$	(144)

Assets & Liabilities Related to Discontinued Operation Financial Information

A summary of the carrying amounts of major classes of assets and liabilities, which are included in assets and liabilities related to discontinued operation in the Condensed Consolidated Balance Sheets, are as follows:

	June 30, 2023		Dec 31, 2022
	($000’s omitted)
Accounts receivable, net	$	625	$	1,016
Prepaid assets		100		313
Inventories, net		1,598		4,766
Machinery and equipment, net		255		567
Patents and trademark, net		46		140
Building and improvements, net		1,550		2,726
Assets related to discontinued operation	$	4,174	$	9,528
Accounts payable	$	1,420	$	1,272
Accrued employee compensation and benefit costs		86		124
Other accrued liabilities		1,258		349
Liabilities related to discontinued operation	$	2,764	$	1,745

The OKC assets not being sold under the terms of the APA include accounts receivable, prepaid assets, and the building (total assets of $2,275,000 as of June 30, 2023). The Company retains and will liquidate these assets in conjunction with the wind down of the OKC operations. The accounts receivable of approximately $625,000 is net of a reserve for uncollectible accounts of approximately $170,000. In addition, the OKC liabilities not assumed under the terms of the APA include the accounts payable and accrued expenses totaling approximately $2,764,000 as of June 30, 2023.

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Inventories

6 Months Ended

Jun. 30, 2023

Inventories

Inventories

3.           Inventories

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Raw material and common parts	$	11,686	$	10,703
Work-in-process		3,357		2,986
Finished goods		671		1,199
		15,714		14,888
Less inventory reserve		(616)		(602)
Total inventories	$	15,098	$	14,286

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Property, Plant and Equipment

6 Months Ended

Jun. 30, 2023

Property, Plant and Equipment

Property, Plant and Equipment

4.           Property, Plant and Equipment

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Buildings	$	8,337	$	7,838
Machinery, equipment and tooling		15,216		14,526
Construction in progress		217		1,002
		23,770		23,366
Less accumulated depreciation and amortization		(16,528)		(16,011)
Total property, plant and equipment	$	7,242	$	7,355

Depreciation and amortization expense amounted to approximately $260,000 and $241,000 for the three-months ended June 30, 2023 and 2022, respectively. Amortization expense primarily related to Right of Use (“ROU”) assets amounted to approximately $7,000 and $8,000 for the three months ended June 30, 2023 and 2022, respectively. Depreciation and amortization expense amounted to approximately $517,000 and $485,000 for the six-months ended June 30, 2023 and 2022, respectively. Amortization expense, primarily related to ROU assets, amounted to approximately $12,000 and $12,000 for the six-months ended June 30, 2023 and 2022, respectively.

The Company’s ROU assets included in machinery, equipment and tooling had a net book value of approximately $172,000 as of June 30, 2023 ($185,000 as of December 31, 2022).

As of June 30, 2023, there is approximately $217,000 ($1,002,000 as of 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 $135,000 in CIP for machinery and equipment and approximately $82,000 for building improvements at the Advanced Technology Group.

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Indebtedness

6 Months Ended

Jun. 30, 2023

Indebtedness

Indebtedness

5.           Indebtedness

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Line of credit payable to a financial institution; Interest rate is the greater of prime or 7% plus 1% per annum. (Interest rate 9.25% as of June 30, 2023) (A)	$	3,697	$	—
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 factor 1.79553% - 1.869304% at time of funding) (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 1.822758% - 1.869304% at time of funding) (C)		—		10
		3,697		501
Less current portion		(3,697)		(501)
Long term debt	$	—	$	—

A) On June 27, 2023, the Company entered into a three-year financing agreement with a financial lending institution for an asset-based line of credit (the “Credit Facility”) with a maximum revolving credit of $7,000,000. The borrowing base under the Credit Facility is determined using 85% of eligible domestic and international accounts receivable balances of the ATG segment, less any other specific reserves. In general terms, ineligible receivables are defined as invoices unpaid over 90 days. The interest rate on the credit facility is equal to the greater of prime rate (as defined by JP Morgan Chase Bank) or 7% plus 1% per annum. The Company capitalized approximately $104,000 of loan origination costs related to the Credit Facility, which is collateralized by the Company’s assets.

The balance outstanding of approximately $3,697,000 as of June 30, 2023 (no balance outstanding as of December 31, 2022) consists of the loan payoff with a financial institution of approximately $3,638,000 on June 28, 2023 (resulting from borrowings in 2023 under the terms of the line of credit with the financial institution), and Credit Facility closing fees of approximately $59,000. In conjunction with the loan payoff, $320,000 of the pledged deposit of $500,000 provided to the financial institution on March 30, 2023 was returned to the Company. The remaining balance of $180,000 remains pledged as collateral with the financial institution for the Company’s credit card program.

In accordance with ASC 470-10-45-5 Classification of Revolving Credit Agreements Subject to Lock-Box Arrangements and Subjective Acceleration Clauses, borrowings outstanding under the Credit Facility that includes both a subjective acceleration clause and requirement to maintain a lock-box arrangement must be considered short-term obligations. As the Credit Facility includes both of the provisions, the outstanding balance of $3,697,000 is classified as a current liability on the Condensed Consolidated Balance Sheet as of June 30, 2023.

The Credit Facility contains two financial covenants required to be maintained by the Company at the end of each of its fiscal quarters. The Tangible Net Worth covenant requires the Company to maintain tangible net worth not less than $20,000,000. The Working Capital covenant requires the Company to maintain working capital not less than $10,000,000. The Company has met both covenant requirements as of June 30, 2023.

Based on the current net losses, working capital needs, and the previous banking relationship, initial concerns were raised about the Company’s ability to meet obligations as they become due.  However, the net loss from continuing

operations was negatively impacted by significant, non-recurring SG&A expenses (see MD&A) and income tax expense (see Note 8), both of which have materially impacted net losses in 2023.  The net loss from discontinued operations (see Note 2) was primarily driven by impairment charges related to winding down the OKC operations and divesting the CPG segment.  Therefore, based on the disposal of the unprofitable CPG segment, the current forecasted revenue and customer backlog, continued production improvements and efficiencies, and the new Credit Facility, Management has concluded that substantial doubt about the Company’s ability to continue as a going concern is alleviated.

B) The Company had an equipment loan facility in the amount of $1,000,000 available until July 9, 2021. This line was non-revolving and non-renewable and the term 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 balance outstanding as of June 30, 2023 ($491,000 outstanding as of December 31, 2022).

C) The Company had a lease line of credit for equipment financing in the amount of $1,000,000 available until June 28, 2018. This line was non-revolving and non-renewable and the term 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 balance outstanding as of June 30, 2023 ($10,000 outstanding as of December 31, 2022).

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Postretirement Benefit Plan

6 Months Ended

Jun. 30, 2023

Postretirement Benefit Plan

Postretirement Benefit Plan

6.            Postretirement Benefit Plan

The Company provides certain postretirement benefits for two former executives of the Company (the Plan). Under the Plan, the Company pays the annual cost of health insurance coverage and provides life insurance at the same level of coverage provided to the former employees at the time of termination of employment. The Plan also provides a benefit to reimburse the participants for certain out-of-pocket medical or health related expenses. The participants’ benefits under the Plan cease upon the death of the former executives. The Plan is unfunded and the actuarially determined future accumulated postretirement benefit obligation at June 30, 2023 and December 31, 2022 was approximately $4,103,000 and $4,062,000, respectively and has been accrued and reflected in Post Retirement Obligation in the accompanying consolidated balance sheets.

Benefit costs for the three-months ended June 30, 2023 and 2022 totaled $65,000 and $69,000, respectively. Benefit costs for the six months ended June 30, 2023 and 2022 totaled $130,000 and $138,000, respectively.

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Shareholders' Equity

6 Months Ended

Jun. 30, 2023

Shareholders' Equity

Shareholders' Equity

7.           Shareholders’ Equity

	Six-month Period Ended June 30, 2023
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		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
Retirement benefits adjustment		—		12		—		—		—		—		12
Stock based compensation		—		—		1		14		—		18		33
Net Loss		(9,500)		—		—		—		—		—		(9,500)
June 30, 2023	$	12,694	$	(2,312)	$	524	$	14,587	$	(157)	$	(1,172)	$	24,164

	Six-month Period Ended June 30, 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
Retirement benefits adjustment		—		22		—		—		—		—		22
Stock based compensation		—		—		—		7		—		35		42
Net Loss		(810)		—		—		—		—		—		(810)
June 30, 2022	$	25,373	$	(3,864)	$	523	$	14,509	$	(258)	$	(1,291)	$	34,992

The Company’s Board of Directors authorized the purchase of up to 450,000 shares of its common stock in the open market or in privately negotiated transactions. As of June 30, 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 six-month periods ended June 30, 2023 and 2022, respectively.

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 10,410 restricted shares were issued on June 9, 2023 with a grant date fair value of $125,000.

Included in the six-month period ended June 30, 2023 and June 30, 2022 is approximately $74,000 and $67,000, respectively, of stock-based compensation expense related to the restrictive share awards. The Company has approximately $250,000 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	12,894	$	11.85
Vested in 2023	(11,701)	$	11.06
Unvested at June 30, 2023	28,203	$	11.45

Earnings Per Share

Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding, are considered forfeitable until the restrictions lapse and will not be included in the basic EPS calculation until the shares are vested. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on the earnings per share that were outstanding for the period. Incremental shares from assumed conversions are calculated as the number of shares that would be issued, net of the number of shares that could be purchased in the marketplace with the cash received upon stock option exercise. The dilutive effect of unvested restrictive stock is determined using the treasury stock method.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	($000’s omitted except per share data)
Loss from continuing operations	$	(3,280)	$	(789)	$	(4,108)	$	(341)
Loss from discontinued operation		(6,220)		(21)		(6,940)		(144)
Net loss	$	(9,500)	$	(810)	$	(11,048)	$	(485)
Weighted average common shares outstanding (basic)		2,461		2,432		2,458		2,435
Unvested restricted stock		28		7		28		7
Weighted average common shares outstanding (diluted)		2,489		2,439		2,486		2,442
Basic and diluted loss per share
Continuing operations	$	(1.33)	$	(0.32)	$	(1.67)	$	(0.14)
Discontinued operation		(2.53)		(0.01)		(2.82)		(0.06)
Basic and diluted earnings per share	$	(3.86)	$	(0.33)	$	(4.49)	$	(0.20)

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Income Taxes

6 Months Ended

Jun. 30, 2023

Income Taxes

Income Taxes

8.           Income Taxes

The income tax expense in the Condensed Consolidated Statements of Operations is approximately $1,479,000 and $1,063,000 for the three and six-months ended June 30, 2023, respectively, compared to an income tax benefit of approximately $167,000 and $80,000 for the three- and six-months ended June 30, 2022, respectively. The tax expense is the result of recording a valuation allowance (tax expense) of approximately $3,182,000 during the second quarter against the net deferred tax assets (net of deferred tax liabilities) of $3,355,000 as of June 30, 2023 (valuation reserve of $173,000 was recorded against the net deferred tax assets of $1,245,000 as of December 31, 2022). The valuation allowance (tax expense) was recorded due to management determining that the potential exists that it is more likely than not that the Company will not realize the net deferred tax assets. Accordingly, no deferred tax assets are recorded on the consolidated balance sheet as of June 30, 2023.

The effective tax rate expense for the three-and six-month month period ended June 30, 2023, is 18.4% and 10.6%, respectively, compared to an effective tax rate benefit for the three-and six-month period ended June 30, 2022, of 17.1% and 14.2%, respectively. The difference between the statutory rate of 21% and the effective tax rate expense in 2023 is due to the recording of a valuation allowance against the net deferred tax asset (net of deferred tax liabilities) in 2023.

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Litigation

6 Months Ended

Jun. 30, 2023

Litigation

Litigation

9.           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 is vigorously defending 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 in June 2021 pending an internal investigation. 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.

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Customer and Supplier Concentration

6 Months Ended

Jun. 30, 2023

Customer and Supplier Concentration

Customer and Supplier Concentration

10.         Customer and Supplier Concentration

Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases.

During the six months ended June 30, 2023 and 2022, approximately 89% and 80%, respectively, were derived from the sale of ATG products to a small base of customers. During the six months ended June 30, 2023, approximately 12% of our purchases for ATG products were derived from one supplier (no significant suppliers for the six months ended June 30, 2022).

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Business Segments

6 Months Ended

Jun. 30, 2023

Business Segments

Business Segments

11.         Business Segments

The Company has operated historically under two business segments: Advanced Technology Group (“ATG”) and Consumer Products Group (“CPG”), which have been strategic business units that offer different products and services. Operations in ATG 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 included the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. The Company derives its primary sales revenue from domestic customers, although a portion of finished products are for foreign end use.

As disclosed in Note 1 and Note 2, the Company’s Board authorized the review of strategic alternatives for the CPG business segment and on July 10, 2023, the Company executed an APA with the third party to sell certain assets and wind down the operations of OKC (the CPG segment) during the second half of 2023. The Company closed on this transaction on August 1, 2023.

Accordingly, the OKC operations are now shown as a discontinued operation for reporting purposes. Therefore, the Company no longer has two business segments under continuing operations for reporting and disclosure purposes as of June 30, 2023.

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Operations and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2023

Operations and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

Servotronics, Inc. and its subsidiaries (the “Company”) 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.

The accompanying unaudited condensed consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

The accompanying consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three- and six-months ended June 30, 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.

The consolidated financial statements include the accounts of Servotronics, Inc. (the active legal entity under the ATG segment), The Ontario Knife Company (“OKC”, the active legal entity under the CPG segment) and other, inactive, wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

As communicated in the March 31, 2023 10-Q filing, the Company’s Board of Directors (the “Board”) authorized the review of strategic alternatives for the CPG segment. On April 18, 2023, the OKC business was listed for sale. On June 20, 2023, the Board approved for management to execute a letter of intent (LOI) to sell certain assets of OKC to a third party. On June 28, 2023, the LOI was executed. On July 10, 2023, the Company executed an Asset Purchase Agreement (“APA”) with the third party, and closed on this transaction on August 1, 2023. Management intends to wind down the OKC operations (the CPG business segment) during the second half of 2023.

Accordingly, the results of operations of OKC are presented as a “Loss from Discontinued Operation, net of tax” on the Condensed Consolidated Statements of Operations, and assets and liabilities are reflected as “Assets and Liabilities related to Discontinued Operation” in the Condensed Consolidated Balance Sheets. The “Loss from Discontinued Operation, net of tax” is included in the net loss on the Condensed Consolidated Statements of Comprehensive Loss, and the cash used by operating activities from the discontinued operation is included in the “Discontinued Operation” section of the Condensed Consolidated Statements of Cash Flows.

The 2022 financial information included in the aforementioned Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations were reclassified to conform with the discontinued operations presentation. Amounts for all periods discussed below reflect the results of operations, financial condition and cash flows from the Company’s continuing operations (ATG), unless otherwise noted. Refer to Note 2, Discontinued Operation and Assets and Liabilities Related to Discontinued Operation, for further discussion.

Use of Estimates

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Cash	$	716	$	3,812
Restricted cash		180		—
Total cash and restricted cash	$	896	$	3,812

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 restricted cash of $180,000 as of June 30, 2023 (no outstanding balance as of December 31, 2022) represents collateral with a financial institution. Refer to Note 5, Indebtedness, 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 $91,000 and $116,000 as of June 30, 2023 and December 31, 2022, respectively. The Company does not accrue interest on past due receivables.

The Company evaluated the accounting standards update related to the 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 June 30, 2023, and December 31, 2022 under the guidance of ASC 460 the Company has recorded a warranty reserve of approximately $579,000 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 expected to be used in greater than two years are applied to the gross value of the inventory through a reserve of approximately $616,000 and $602,000 at June 30, 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 right-of-use (“ROU”) assets accounted for as finance leases. The estimated useful lives of depreciable properties are generally as follows:

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

Income Taxes

Income Taxes

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 June 30, 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 June 30, 2023 and June 30, 2022. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of June 30, 2023 and December 31, 2022. The 2019 through 2022 federal and state tax returns remain subject to examination.

Supplemental Cash Flow Information

Supplemental Cash Flow Information

There were income tax refunds received of approximately $0 and $811,000 for the six-month period ended June 30, 2023 and 2022, respectively. Income taxes paid amounted to approximately $2,000 and $50,000 for the six-month period ended June 30, 2023 and 2022, respectively. Interest paid during the six-month period ended June 30, 2023 and 2022 amounted to approximately $46,000 and $66,000, respectively.

Employee Stock Ownership Plan

Employee Stock Ownership Plan

Contributions to the employee stock ownership plan are determined annually by the Company according to plan formula.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable based on undiscounted future operating cash flow analyses. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Due to the losses incurred, 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’s strategic decision to sell certain assets of OKC resulted in the classification of a discontinued operation and triggered an impairment of OKC’s real property as of June 30, 2023 in accordance with Accounting Standards Codification (“ASC”) 360-10-45-9 Impairment or Disposal of Long-Lived Assets. Refer to Note 2, Discontinued Operation and Assets and Liabilities Related to Discontinued Operation, for further discussion.

The Company has determined that no other impairment of long-lived assets existed as of June 30, 2023 and December 31, 2022, which primarily includes the Company’s tangible real (land and building) and personal (machinery & equipment) properties.

Reclassifications

Reclassifications

Certain balances as previously reported were reclassified with classifications adopted in the current period.

Effective January 1, 2023 the ATG research and development and certain insurance expenditures of approximately $507,000 and $902,000 for the three- and six-months ended June 30, 2023 are reflected in selling, general and administrative operating expenses. Accordingly, approximately $333,000 and $652,000 for the three- and six-months ended June 30, 2022 was reclassified from cost of goods sold to selling, general and administrative 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 expenses 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 assesses the risk of nonperformance by the financial institutions to be low.

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 asset-based line of credit the fair value approximates its carrying amount.

Recent Accounting Pronouncements Adopted

Recent Accounting Pronouncements Adopted

Effective January 1, 2023, the Company adopted the Accounting Standards 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 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.

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Operations and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2023

Operations and Summary of Significant Accounting Policies

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

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Cash	$	716	$	3,812
Restricted cash		180		—
Total cash and restricted cash	$	896	$	3,812

Schedule of estimated useful lives of depreciable properties

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

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Discontinued Operation and Assets and Liabilities Related to Discontinued Operation (Tables)

6 Months Ended

Jun. 30, 2023

Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

Summary of the results of operations classified as a discontinued operation, net of tax and carrying amounts of major classes of assets and liabilities, which are included in assets and liabilities related to discontinued operation

	Three Months Ended		Three Months Ended
	June 30, 2023		June 30, 2022
		($000’s omitted)
Net Sales	$	1,345	$	2,482
Operating costs		(2,115)		(2,503)
Loss from discontinued operation		(770)		(21)
Loss from discontinued operation - impairment and divestiture costs		(2,227)		—
Loss on sale of assets		(3,223)		—
Loss from discontinued operation before income taxes		(6,220)		(21)
Income tax benefit		—		—
Loss from discontinued operation, net of tax	$	(6,220)	$	(21)

	Six Months Ended		Six Months Ended
	June 30, 2023		June 30, 2022
	($000’s omitted)
Net Sales	$	3,087	$	4,482
Operating costs		(4,577)		(4,626)
Loss from discontinued operation		(1,490)		(144)
Loss from discontinued operation - impairment and divestiture costs		(2,227)		—
Loss on sale of assets		(3,223)		—
Loss from discontinued operation before income taxes		(6,940)		(144)
Income tax benefit		—		—
Loss from discontinued operation, net of tax	$	(6,940)	$	(144)

	June 30, 2023		Dec 31, 2022
	($000’s omitted)
Accounts receivable, net	$	625	$	1,016
Prepaid assets		100		313
Inventories, net		1,598		4,766
Machinery and equipment, net		255		567
Patents and trademark, net		46		140
Building and improvements, net		1,550		2,726
Assets related to discontinued operation	$	4,174	$	9,528
Accounts payable	$	1,420	$	1,272
Accrued employee compensation and benefit costs		86		124
Other accrued liabilities		1,258		349
Liabilities related to discontinued operation	$	2,764	$	1,745

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Inventories (Tables)

6 Months Ended

Jun. 30, 2023

Inventories

Schedule of inventories

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Raw material and common parts	$	11,686	$	10,703
Work-in-process		3,357		2,986
Finished goods		671		1,199
		15,714		14,888
Less inventory reserve		(616)		(602)
Total inventories	$	15,098	$	14,286

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Property, Plant and Equipment (Tables)

6 Months Ended

Jun. 30, 2023

Property, Plant and Equipment

Schedule of property, plant and equipment

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Buildings	$	8,337	$	7,838
Machinery, equipment and tooling		15,216		14,526
Construction in progress		217		1,002
		23,770		23,366
Less accumulated depreciation and amortization		(16,528)		(16,011)
Total property, plant and equipment	$	7,242	$	7,355

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Indebtedness (Tables)

6 Months Ended

Jun. 30, 2023

Indebtedness

Schedule of long-term debt

	June 30,		December 31,
	2023		2022
	($000’s omitted)
Line of credit payable to a financial institution; Interest rate is the greater of prime or 7% plus 1% per annum. (Interest rate 9.25% as of June 30, 2023) (A)	$	3,697	$	—
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 factor 1.79553% - 1.869304% at time of funding) (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 1.822758% - 1.869304% at time of funding) (C)		—		10
		3,697		501
Less current portion		(3,697)		(501)
Long term debt	$	—	$	—

A) On June 27, 2023, the Company entered into a three-year financing agreement with a financial lending institution for an asset-based line of credit (the “Credit Facility”) with a maximum revolving credit of $7,000,000. The borrowing base under the Credit Facility is determined using 85% of eligible domestic and international accounts receivable balances of the ATG segment, less any other specific reserves. In general terms, ineligible receivables are defined as invoices unpaid over 90 days. The interest rate on the credit facility is equal to the greater of prime rate (as defined by JP Morgan Chase Bank) or 7% plus 1% per annum. The Company capitalized approximately $104,000 of loan origination costs related to the Credit Facility, which is collateralized by the Company’s assets.

The balance outstanding of approximately $3,697,000 as of June 30, 2023 (no balance outstanding as of December 31, 2022) consists of the loan payoff with a financial institution of approximately $3,638,000 on June 28, 2023 (resulting from borrowings in 2023 under the terms of the line of credit with the financial institution), and Credit Facility closing fees of approximately $59,000. In conjunction with the loan payoff, $320,000 of the pledged deposit of $500,000 provided to the financial institution on March 30, 2023 was returned to the Company. The remaining balance of $180,000 remains pledged as collateral with the financial institution for the Company’s credit card program.

In accordance with ASC 470-10-45-5 Classification of Revolving Credit Agreements Subject to Lock-Box Arrangements and Subjective Acceleration Clauses, borrowings outstanding under the Credit Facility that includes both a subjective acceleration clause and requirement to maintain a lock-box arrangement must be considered short-term obligations. As the Credit Facility includes both of the provisions, the outstanding balance of $3,697,000 is classified as a current liability on the Condensed Consolidated Balance Sheet as of June 30, 2023.

The Credit Facility contains two financial covenants required to be maintained by the Company at the end of each of its fiscal quarters. The Tangible Net Worth covenant requires the Company to maintain tangible net worth not less than $20,000,000. The Working Capital covenant requires the Company to maintain working capital not less than $10,000,000. The Company has met both covenant requirements as of June 30, 2023.

Based on the current net losses, working capital needs, and the previous banking relationship, initial concerns were raised about the Company’s ability to meet obligations as they become due.  However, the net loss from continuing

operations was negatively impacted by significant, non-recurring SG&A expenses (see MD&A) and income tax expense (see Note 8), both of which have materially impacted net losses in 2023.  The net loss from discontinued operations (see Note 2) was primarily driven by impairment charges related to winding down the OKC operations and divesting the CPG segment.  Therefore, based on the disposal of the unprofitable CPG segment, the current forecasted revenue and customer backlog, continued production improvements and efficiencies, and the new Credit Facility, Management has concluded that substantial doubt about the Company’s ability to continue as a going concern is alleviated.

B) The Company had an equipment loan facility in the amount of $1,000,000 available until July 9, 2021. This line was non-revolving and non-renewable and the term 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 balance outstanding as of June 30, 2023 ($491,000 outstanding as of December 31, 2022).

C) The Company had a lease line of credit for equipment financing in the amount of $1,000,000 available until June 28, 2018. This line was non-revolving and non-renewable and the term 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 balance outstanding as of June 30, 2023 ($10,000 outstanding as of December 31, 2022).

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Shareholders' Equity (Tables)

6 Months Ended

Jun. 30, 2023

Shareholders' Equity

Schedule of stockholders equity

	Six-month Period Ended June 30, 2023
			Accumulated
			Other				Capital in						Total
	Retained		Comprehensive				excess of				Treasury		shareholders’
	Earnings		Income		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
Retirement benefits adjustment		—		12		—		—		—		—		12
Stock based compensation		—		—		1		14		—		18		33
Net Loss		(9,500)		—		—		—		—		—		(9,500)
June 30, 2023	$	12,694	$	(2,312)	$	524	$	14,587	$	(157)	$	(1,172)	$	24,164

	Six-month Period Ended June 30, 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
Retirement benefits adjustment		—		22		—		—		—		—		22
Stock based compensation		—		—		—		7		—		35		42
Net Loss		(810)		—		—		—		—		—		(810)
June 30, 2022	$	25,373	$	(3,864)	$	523	$	14,509	$	(258)	$	(1,291)	$	34,992

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	12,894	$	11.85
Vested in 2023	(11,701)	$	11.06
Unvested at June 30, 2023	28,203	$	11.45

Schedule of earnings per share

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	($000’s omitted except per share data)
Loss from continuing operations	$	(3,280)	$	(789)	$	(4,108)	$	(341)
Loss from discontinued operation		(6,220)		(21)		(6,940)		(144)
Net loss	$	(9,500)	$	(810)	$	(11,048)	$	(485)
Weighted average common shares outstanding (basic)		2,461		2,432		2,458		2,435
Unvested restricted stock		28		7		28		7
Weighted average common shares outstanding (diluted)		2,489		2,439		2,486		2,442
Basic and diluted loss per share
Continuing operations	$	(1.33)	$	(0.32)	$	(1.67)	$	(0.14)
Discontinued operation		(2.53)		(0.01)		(2.82)		(0.06)
Basic and diluted earnings per share	$	(3.86)	$	(0.33)	$	(4.49)	$	(0.20)

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Operations and Summary of Significant Accounting Policies - Cash and Restricted Cash (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022	Jun. 30, 2022	Dec. 31, 2021
Reconciliation of cash and restricted cash to the amounts in the statement of cash flow
Cash	$ 716,000	$ 3,812,000
Restricted cash	180,000	0
Total cash and restricted cash	$ 896,000	$ 3,812,000	$ 4,820,000	$ 9,433,000

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Operations and Summary of Significant Accounting Policies - Estimated useful lives of depreciable properties (Details)	Jun. 30, 2023
Buildings and improvements | Minimum
Operations and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	5 years
Buildings and improvements | Maximum
Operations and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	40 years
Machinery and equipment | Minimum
Operations and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	5 years
Machinery and equipment | Maximum
Operations and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	20 years
Tooling | Minimum
Operations and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	3 years
Tooling | Maximum
Operations and Summary of Significant Accounting Policies
Estimated useful lives of depreciable properties	5 years

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Operations and Summary of Significant Accounting Policies - Additional Information (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2023 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2023 USD ($) Y	Jun. 30, 2022 USD ($)	Dec. 31, 2022 USD ($)
Operations and Summary of Significant Accounting Policies
Allowance for doubtful accounts	$ 91,000		$ 91,000		$ 116,000
Warranty period			27 months
Warranty reserve	579,000		$ 579,000		581,000
Inventory reserve	616,000		616,000		602,000
Income taxes paid or refunded			0	$ 811,000
Income taxes refunded/paid			2,000	50,000
Interest paid			46,000	66,000
Impairment of long-lived assets			0		$ 0
ATG Research and development expenditures
Operations and Summary of Significant Accounting Policies
Research and Development Costs	$ 507,000		$ 902,000
Selling, general and administrative
Operations and Summary of Significant Accounting Policies
Research and Development Costs		$ 333,000		$ 652,000
Minimum
Operations and Summary of Significant Accounting Policies
Number of year's supply | Y			1
Period inventory is expected to be used			2 years

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Discontinued Operation and Assets and Liabilities Related to Discontinued Operation (Details) - USD ($)		3 Months Ended		6 Months Ended
	Aug. 01, 2023	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation
Loss from discontinued operation		$ (6,220,000)	$ (21,000)	$ (6,940,000)	$ (144,000)
Held for sale | OKC
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation
Consideration for sale of assets	$ 2,100,000
Impairment charge related to the real property	1,098,000
Estimated wind down costs	1,129,000
Impairment and divestiture costs	2,227,000	2,227,000		2,227,000
Operating loss		(770,000)	(21,000)	(1,490,000)	(144,000)
Loss from discontinued operation		$ (6,220,000)	$ (21,000)	$ (6,940,000)	$ (144,000)
Held for sale | OKC | CPG segment
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation
Impairment charge	$ 3,223,000

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Discontinued Operation and Assets and Liabilities Related to Discontinued Operation - Results of operations classified as a discontinued operation, net of tax, in the Condensed Consolidated Statements of Operations (Details) - USD ($)		3 Months Ended		6 Months Ended
	Aug. 01, 2023	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Results of operations classified as a discontinued operation, net of tax
Loss from discontinued operation, net of tax		$ (6,220,000)	$ (21,000)	$ (6,940,000)	$ (144,000)
Held for sale | OKC
Results of operations classified as a discontinued operation, net of tax
Net Sales		1,345,000	2,482,000	3,087,000	4,482,000
Operating costs		(2,115,000)	(2,503,000)	(4,577,000)	(4,626,000)
Loss from discontinued operation		(770,000)	(21,000)	(1,490,000)	(144,000)
Loss from discontinued operation - impairment and divestiture costs	$ (2,227,000)	(2,227,000)		(2,227,000)
Loss on sale of assets		(3,223,000)		(3,223,000)
Loss from discontinued operation before income taxes		(6,220,000)	(21,000)	(6,940,000)	(144,000)
Loss from discontinued operation, net of tax		$ (6,220,000)	$ (21,000)	$ (6,940,000)	$ (144,000)

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Discontinued Operation and Assets and Liabilities Related to Discontinued Operation - Discontinued operation in the Condensed Consolidated Balance Sheets (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Carrying amounts of major classes of assets and liabilities, which are included in assets and liabilities related to discontinued operation in the Condensed Consolidated Balance Sheets
Liabilities related to discontinued operation	$ 2,763	$ 1,745
Discontinued Operations, Held-for-Sale [Member] | OKC
Carrying amounts of major classes of assets and liabilities, which are included in assets and liabilities related to discontinued operation in the Condensed Consolidated Balance Sheets
Accounts receivable, net	625	1,016
Prepaid assets	100	313
Inventories, net	1,598	4,766
Patents and trademark, net	46	140
Assets related to discontinued operation	4,174	9,528
Accounts payable	1,420	1,272
Accrued employee compensation and benefit costs	86	124
Other accrued liabilities	1,258	349
Liabilities related to discontinued operation	2,764	1,745
Discontinued Operations, Held-for-Sale [Member] | OKC | Machinery and equipment
Carrying amounts of major classes of assets and liabilities, which are included in assets and liabilities related to discontinued operation in the Condensed Consolidated Balance Sheets
Property, plant and equipment	255	567
Discontinued Operations, Held-for-Sale [Member] | OKC | Building and improvements, net
Carrying amounts of major classes of assets and liabilities, which are included in assets and liabilities related to discontinued operation in the Condensed Consolidated Balance Sheets
Property, plant and equipment	$ 1,550	$ 2,726

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Discontinued Operation and Assets and Liabilities Related to Discontinued Operation - Additional Information (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation
Liabilities not assumed	$ 2,763,000	$ 1,745,000
Held for sale | OKC
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation
Total assets not being sold	4,174,000	9,528,000
Accounts receivable, net of reserve	625,000	1,016,000
Liabilities not assumed	2,764,000	$ 1,745,000
Wind down | OKC
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation
Total assets not being sold	2,275,000
Accounts receivable, net of reserve	625,000
Reserve for uncollectible accounts	170,000
Liabilities not assumed	$ 2,764,000

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Inventories (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Inventories
Raw material and common parts	$ 11,686,000	$ 10,703,000
Work-in-process	3,357,000	2,986,000
Finished goods	671,000	1,199,000
Inventory, Gross	15,714,000	14,888,000
Less inventory reserve	(616,000)	(602,000)
Total inventories	$ 15,098,000	$ 14,286,000

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Property, Plant and Equipment - Summary of property, plant and equipment (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Property, Plant and Equipment
Property, plant and equipment, Gross	$ 23,770,000	$ 23,366,000
Less accumulated depreciation and amortization	(16,528,000)	(16,011,000)
Property, plant and equipment, net	7,242,000	7,355,000
Buildings
Property, Plant and Equipment
Property, plant and equipment, Gross	8,337,000	7,838,000
Machinery, equipment and tooling
Property, Plant and Equipment
Property, plant and equipment, Gross	15,216,000	14,526,000
Construction in progress
Property, Plant and Equipment
Property, plant and equipment, Gross	$ 217,000	$ 1,002,000

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Property, Plant and Equipment - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Property, Plant and Equipment
Depreciation and amortization expense	$ 260,000	$ 241,000	$ 517,000	$ 485,000
Amortization expense	7,000	$ 8,000	12,000	$ 12,000
Property, plant and equipment, Gross	23,770,000		23,770,000		$ 23,366,000
Machinery and equipment
Property, Plant and Equipment
ROU assets	172,000		172,000		185,000
Property, plant and equipment, Gross	15,216,000		15,216,000		14,526,000
Construction in progress
Property, Plant and Equipment
Property, plant and equipment, Gross	217,000		217,000		$ 1,002,000
Construction In Progress Machinery And Equipment [Member]
Property, Plant and Equipment
Property, plant and equipment, Gross	135,000		135,000
Construction InProgress Building Improvement [Member]
Property, Plant and Equipment
Property, plant and equipment, Gross	$ 82,000		$ 82,000

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Indebtedness - Summary of long term debt (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Long-Term Debt
Long-term debt, Total	$ 3,697,000	$ 501,000
Less current portion	(3,697,000)	(501,000)
Long term debt	0	0
Line of credit (LOC)
Long-Term Debt
Long-term debt, Total	3,697,000	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 factor 1.79553% - 1.869304% at time of funding)
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 1.822758% - 1.869304% at time of funding)
Long-Term Debt
Long-term debt, Total	$ 0	$ 10,000

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Indebtedness - Summary of long term debt information (Details)	6 Months Ended
	Jun. 30, 2023
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 factor 1.79553% - 1.869304% at time of funding) | Minimum
Debt Instrument
Percentage of floating interest rate payable	1.79553%
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 factor 1.79553% - 1.869304% at time of funding) | Maximum
Debt Instrument
Percentage of floating interest rate payable	1.8693%
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) | Minimum
Debt Instrument
Percentage of floating interest rate payable	1.82276%
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) | Maximum
Debt Instrument
Percentage of floating interest rate payable	1.8693%
LIBOR
Debt Instrument
Percentage of floating interest rate payable	9.25%
LIBOR | Line of credit (LOC)
Debt Instrument
Percentage of fixed interest rate payable	7.00%
Spread on variable rate	1.00%

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Indebtedness - Additional Information (Details)		6 Months Ended
	Jun. 27, 2023 USD ($)	Jun. 30, 2023 USD ($) item	Jun. 30, 2022 USD ($)	Jun. 28, 2023 USD ($)	Mar. 31, 2023 USD ($)	Mar. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)	Mar. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)	Jul. 09, 2021 USD ($)	Jun. 28, 2018 USD ($)
Debt Instrument
Principal payments on long-term debt			$ 4,250,000
Cash and Cash Equivalents, at Carrying Value		$ 716,000					$ 3,812,000
Outstanding balance		3,697,000					501,000
Total shareholders' equity		24,164,000	$ 34,992,000		$ 33,619,000		35,113,000	$ 35,738,000	$ 35,366,000
Revolving credit facility
Debt Instrument
Maximum availability	$ 7,000,000
Percentage of fixed interest rate payable	7.00%
Spread on variable rate	1.00%
Loan origination costs capitalized	$ 104,000
Term of agreement	3 years
Term of invoices unpaid defined as ineligible receivables	90 days
Balance outstanding		3,697,000					0
Loan payoff with a financial institution				$ 3,638,000
Closing fees		59,000
Pledged deposit returned to the Company		320,000
Pledged deposit		$ 180,000				$ 500,000
Number of financial covenants | item		2
Minimum tangible net worth		$ 20,000,000
Minimum working capital		10,000,000
Revolving credit facility | ATG
Debt Instrument
Borrowing base as percentage of eligible domestic and international accounts receivable balances	85.00%
Line of credit (LOC)
Debt Instrument
Outstanding balance		3,697,000					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 factor 1.79553% - 1.869304% at time of funding)
Debt Instrument
Outstanding balance		$ 0					491,000
Loan line of credit										$ 1,000,000
Term of agreement		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 factor 1.79553% - 1.869304% at time of funding) | Maximum
Debt Instrument
Percentage of floating interest rate payable		1.8693%
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 factor 1.79553% - 1.869304% at time of funding) | Minimum
Debt Instrument
Percentage of floating interest rate payable		1.79553%
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding)
Debt Instrument
Outstanding balance		$ 0					$ 10,000
Lease line of credit											$ 1,000,000
Term of agreement		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 1.822758% - 1.869304% at time of funding) | Maximum
Debt Instrument
Percentage of floating interest rate payable		1.8693%
Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.822758% - 1.869304% at time of funding) | Minimum
Debt Instrument
Percentage of floating interest rate payable		1.82276%

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Postretirement Benefit Plan (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Postretirement Benefit Plan
Future obligation of benefits	$ 4,103,000		$ 4,103,000		$ 4,062,000
Benefit cost	$ 65,000	$ 69,000	$ 130,000	$ 138,000

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Shareholders' Equity - Summary of common shareholders' equity (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2023	Mar. 31, 2023	Jun. 30, 2022	Mar. 31, 2022	Jun. 30, 2023	Jun. 30, 2022
Shareholders' Equity
Beginning balance	$ 33,619	$ 35,113	$ 35,738	$ 35,366	$ 35,113	$ 35,366
Retirement benefits adjustment	12	13	22	22
Stock based compensation	33	41	42	25
Net Income (Loss)	(9,500)	(1,547)	(810)	325	(11,048)	(485)
Ending balance	24,164	33,619	34,992	35,738	24,164	34,992
Retained earnings
Shareholders' Equity
Beginning balance	22,194	23,741	26,183	25,858	23,741	25,858
Retirement benefits adjustment	0	0	0	0
Stock based compensation	0	0	0	0
Net Income (Loss)	(9,500)	(1,547)	(810)	325
Ending balance	12,694	22,194	25,373	26,183	12,694	25,373
Accumulated Other Comprehensive Loss
Shareholders' Equity
Beginning balance	(2,324)	(2,337)	(3,886)	(3,908)	(2,337)	(3,908)
Retirement benefits adjustment	12	13	22	22
Stock based compensation	0	0	0	0
Net Income (Loss)	0	0	0	0
Ending balance	(2,312)	(2,324)	(3,864)	(3,886)	(2,312)	(3,864)
Common Stock
Shareholders' Equity
Beginning balance	523	523	523	523	523	523
Retirement benefits adjustment	0	0	0	0
Stock based compensation	1	0	0	0
Net Income (Loss)	0	0	0	0
Ending balance	524	523	523	523	524	523
Capital in excess of par value
Shareholders' Equity
Beginning balance	14,573	14,556	14,502	14,500	14,556	14,500
Retirement benefits adjustment	0	0	0	0
Stock based compensation	14	17	7	2
Net Income (Loss)	0	0	0	0
Ending balance	14,587	14,573	14,509	14,502	14,587	14,509
ESOT
Shareholders' Equity
Beginning balance	(157)	(157)	(258)	(258)	(157)	(258)
Retirement benefits adjustment	0	0	0	0
Stock based compensation	0	0	0	0
Net Income (Loss)	0	0	0	0
Ending balance	(157)	(157)	(258)	(258)	(157)	(258)
Treasury stock
Shareholders' Equity
Beginning balance	(1,190)	(1,214)	(1,326)	(1,349)	(1,214)	(1,349)
Retirement benefits adjustment	0	0	0	0
Stock based compensation	18	24	35	23
Net Income (Loss)	0	0	0	0
Ending balance	$ (1,172)	$ (1,190)	$ (1,291)	$ (1,326)	$ (1,172)	$ (1,291)

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Shareholders' Equity - Share Repurchase Program (Details) - Share Repurchase Program - shares	6 Months Ended
	Jun. 30, 2023	Jun. 30, 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

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Shareholders' Equity - 2022 Equity Incentive Plan (Details) - USD ($)		6 Months Ended
	Jun. 09, 2023	Jun. 30, 2023	Jun. 30, 2022
Shareholders' Equity
Stock-based compensation expense related to the restrictive share awards		$ 74,000,000	$ 67,000,000
Restricted share awards
Shareholders' Equity
Compensation expense not yet recognized		$ 250,000,000
2022 Equity Incentive Plan | Non-employee directors
Shareholders' Equity
Number of restricted stock issued	10,410
Compensation expense not yet recognized	$ 125,000

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Shareholders' Equity - Restricted stock activity (Details)	6 Months Ended
	Jun. 30, 2023 $ / shares shares
Restricted Share Activity:
Unvested at the beginning | shares	27,010
Granted | shares	12,894
Vested | shares	(11,701)
Unvested at the end | shares	28,203
Weighted Average Grant Date Fair Value
Unvested, beginning balance | $ / shares	$ 11.09
Granted | $ / shares	11.85
Vested | $ / shares	11.06
Unvested, ending balance | $ / shares	$ 11.45

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Shareholders' Equity - Calculation of earning per share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2023	Mar. 31, 2023	Jun. 30, 2022	Mar. 31, 2022	Jun. 30, 2023	Jun. 30, 2022
Shareholders' Equity
Loss from continuing operations	$ (3,280)		$ (789)		$ (4,108)	$ (341)
Loss from discontinued operation	(6,220)		(21)		(6,940)	(144)
Net Income (Loss)	$ (9,500)	$ (1,547)	$ (810)	$ 325	$ (11,048)	$ (485)
Weighted average common shares outstanding (basic)	2,461		2,432		2,458	2,435
Unvested restricted stock	28		7		28	7
Weighted average common shares outstanding (diluted)	2,489		2,439		2,486	2,442
Basic
Continuing operations	$ (1.33)		$ (0.32)		$ (1.67)	$ (0.14)
Discontinued operation	(2.53)		(0.01)		(2.82)	(0.06)
Earnings per share	(3.86)		(0.33)		(4.49)	(0.20)
Diluted
Continuing operations	(1.33)		(0.32)		(1.67)	(0.14)
Discontinued operation	(2.53)		(0.01)		(2.82)	(0.06)
Earnings per share	$ (3.86)		$ (0.33)		$ (4.49)	$ (0.20)

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Income Taxes (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Income Taxes
Income tax expense (benefit)	$ 1,479,000	$ (167,000)	$ 1,063,000	$ (80,000)
Valuation allowance (tax expense)	3,182,000
Deferred tax assets (net of deferred tax liabilities)	3,355,000		3,355,000
Deferred tax assets valuation reserve	$ 173,000		$ 173,000
Deferred tax assets					$ 1,245,000
Effective tax rate expense	18.40%	17.10%	10.60%	14.20%
Effective tax rate			21.00%

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Litigation (Details)	6 Months Ended
	Jun. 30, 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

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Customer and Supplier Concentration (Details) - ATG	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Sale | Customer concentration
Customer and Supplier Concentration
Concentration of risk (as a percent)	89.00%	80.00%
Purchases | Supplier concentration
Customer and Supplier Concentration
Concentration of risk (as a percent)	12.00%

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Business Segments (Details)	6 Months Ended
	Jun. 30, 2023 segment
Business Segments
Number of operating segments	2

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Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2023	Mar. 31, 2023	Jun. 30, 2022	Mar. 31, 2022	Jun. 30, 2023	Jun. 30, 2022
Pay vs Performance Disclosure
Net Income (Loss)	$ (9,500)	$ (1,547)	$ (810)	$ 325	$ (11,048)	$ (485)

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Insider Trading Arrangements

3 Months Ended

Jun. 30, 2023

Trading Arrangements, by Individual

Material Terms of Trading Arrangement

(c) Trading Plans

During the three months ended June 30, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

Rule 10b5-1 Arrangement Adopted

false

Non-Rule 10b5-1 Arrangement Adopted

false

Rule 10b5-1 Arrangement Terminated

false

Non-Rule 10b5-1 Arrangement Terminated

false