SERVOTRONICS INC /DE/ - Quarter Report: 2023 June (Form 10-Q)

Table of Contents

​

​

​

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)

​

​

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:

​

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.

​

​

​

​

​

​

Table of Contents

​

INDEX

​

​

​

​

- 2 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

​

​

See notes to condensed consolidated financial statements

​

- 3 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($000’s omitted except per share data)

(Unaudited)

​

​

See notes to condensed consolidated financial statements

​

- 4 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

($000’s omitted)

(Unaudited)

​

​

See notes to condensed consolidated financial statements

​

- 5 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($000’s omitted)

(Unaudited)

​

​

See notes to condensed consolidated financial statements

​

​

- 6 -

Table of Contents

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.

- 7 -

Table of Contents

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.

​

​

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.

- 8 -

Table of Contents

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:

​

​

- 9 -

Table of Contents

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.

- 10 -

Table of Contents

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.

- 11 -

Table of Contents

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:

​

​

​

- 12 -

Table of Contents

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:

​

​

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

​

​

4.           Property, Plant and Equipment

​

​

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 -

Table of Contents

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

​

​

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 -

Table of Contents

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.

​

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 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

​

7.           Shareholders’ Equity

​

​

​

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 -

Table of Contents

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.

​