Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2023 | Oct. 22, 2023 | |
Document and Entity Information | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Sep. 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 | Q3 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2023 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Current assets: | ||
Cash | $ 158,000 | $ 3,812,000 |
Cash, restricted | 150,000 | 0 |
Accounts receivable, net | 12,297,000 | 8,453,000 |
Inventories, net | 15,048,000 | 14,286,000 |
Prepaid income taxes | 139,000 | 138,000 |
Other current assets | 727,000 | 477,000 |
Assets related to discontinued operation | 1,981,000 | 9,528,000 |
Total current assets | 30,500,000 | 36,694,000 |
Property, plant and equipment, net | 7,172,000 | 7,355,000 |
Deferred income taxes, net | 1,072,000 | |
Other non-current assets | 42,000 | 173,000 |
Total Assets | 37,714,000 | 45,294,000 |
Current liabilities: | ||
Line of credit | 2,164,000 | |
Current portion of equipment financing and capital leases | 501,000 | |
Current portion of post retirement obligation | 87,000 | 87,000 |
Accounts payable | 2,958,000 | 1,840,000 |
Accrued employee compensation and benefits costs | 1,286,000 | 1,057,000 |
Accrued warranty | 544,000 | 581,000 |
Other accrued liabilities | 925,000 | 396,000 |
Liabilities related to discontinued operation | 1,741,000 | 1,745,000 |
Total current liabilities | 9,705,000 | 6,207,000 |
Post retirement obligation | 3,996,000 | 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 | 525,000 | 523,000 |
Capital in excess of par value | 14,603,000 | 14,556,000 |
Retained earnings | 12,489,000 | 23,741,000 |
Accumulated other comprehensive loss | (2,295,000) | (2,337,000) |
Employee stock ownership trust commitment | (157,000) | (157,000) |
Treasury stock, at cost 91,570 (104,464 - 2022) shares | (1,152,000) | (1,214,000) |
Total shareholders' equity | 24,013,000 | 35,112,000 |
Total Liabilities and Shareholders' Equity | $ 37,714,000 | $ 45,294,000 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares | Sep. 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 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
Revenue | $ 11,582,000 | $ 8,823,000 | $ 31,291,000 | $ 26,739,000 |
Costs and expenses: | ||||
Costs of goods sold, inclusive of depreciation and amortization | 9,083,000 | 7,596,000 | 26,252,000 | 21,814,000 |
Gross profit | 2,499,000 | 1,227,000 | 5,039,000 | 4,925,000 |
Operating expenses: | ||||
Selling, general and administrative | 2,219,000 | 1,918,000 | 7,663,000 | 5,919,000 |
Total operating costs and expenses | 11,302,000 | 9,514,000 | 33,915,000 | 27,733,000 |
Operating income/(loss) | 280,000 | (691,000) | (2,624,000) | (994,000) |
Other (expense)/income: | ||||
Interest expense | (98,000) | (50,000) | (239,000) | (194,000) |
Gain on sale of equipment | 26,000 | |||
Total other (expense)/income, net | (98,000) | (50,000) | (239,000) | (168,000) |
Income/(loss) from continuing operations before income taxes | 182,000 | (741,000) | (2,863,000) | (1,162,000) |
Income tax benefit/(expense) | 0 | 154,000 | (1,063,000) | 234,000 |
Income/(loss) from continuing operations | 182,000 | (587,000) | (3,926,000) | (928,000) |
(Loss)/income from discontinued operation, net of tax (Note 2) | (386,000) | 271,000 | (7,326,000) | 127,000 |
Net loss | $ (204,000) | $ (316,000) | $ (11,252,000) | $ (801,000) |
Basic | ||||
Continuing operations | $ 0.07 | $ (0.24) | $ (1.59) | $ (0.38) |
Discontinued operation | (0.16) | 0.11 | (2.97) | 0.05 |
Net loss per share | (0.09) | (0.13) | (4.56) | (0.33) |
Diluted | ||||
Continuing operations | 0.07 | (0.24) | (1.59) | (0.38) |
Discontinued operation | (0.16) | 0.11 | (2.97) | 0.05 |
Net loss per share | $ (0.09) | $ (0.13) | $ (4.56) | $ (0.33) |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS | ||||
Net loss | $ (204) | $ (316) | $ (11,252) | $ (801) |
Other comprehensive income items: | ||||
Actuarial gains | 17 | 28 | 42 | 84 |
Income tax provision on actuarial gains | (6) | (18) | ||
Other comprehensive income: | ||||
Retirement benefits adjustments, net of income taxes | 17 | 22 | 42 | 66 |
Total comprehensive loss | $ (187) | $ (294) | $ (11,210) | $ (735) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 9 Months Ended | |
Sep. 30, 2023 | Sep. 30, 2022 | |
Cash flows related to operating activities: | ||
Loss from continuing operations | $ (3,926,000) | $ (928,000) |
Adjustments to reconcile net loss to net cash used by operating activities: | ||
Depreciation and amortization | 790,000 | 751,000 |
Stock based compensation | 110,000 | 126,000 |
Decrease in allowance for credit losses | 8,000 | 5,000 |
Increase (decrease) in inventory reserve | 34,000 | (112,000) |
(Decrease)increase in warranty reserve | (37,000) | 32,000 |
Deferred income taxes | 1,077,000 | 24,000 |
Gain on sale of equipment | (26,000) | |
Change in assets and liabilities: | ||
Accounts receivable | (3,852,000) | (3,772,000) |
Inventories | (796,000) | 1,928,000 |
Prepaid income taxes | (1,000) | 527,000 |
Other current assets | (250,000) | (233,000) |
Accounts payable | 1,118,000 | 1,467,000 |
Accrued employee compensation and benefit costs | 229,000 | (66,000) |
Post retirement obligations | 59,000 | 86,000 |
Other accrued liabilities | 529,000 | 44,000 |
Net cash used in operating activities from continuing operations | (4,908,000) | (147,000) |
Cash flows related to investing activities: | ||
Capital expenditures - property, plant and equipment | (606,000) | (879,000) |
Proceeds from sale of assets | 38,000 | |
Net cash used in investing activities from continuing operations | (606,000) | (841,000) |
Cash flows related to financing activities: | ||
Advances on line of credit, net of payments | 2,164,000 | |
Principal payments on long-term debt | (4,250,000) | |
Principal payments on equipment financing lease obligations | (501,000) | (210,000) |
Net cash provided by (used in) financing activities from continuing operations | 1,663,000 | (4,460,000) |
Discontinued Operation | ||
Cash (used in) provided by operating activities | (1,753,000) | 151,000 |
Cash provided by investing activities | 2,100,000 | 0 |
Net cash provided by operating and investing activities from discontinued operation | 347,000 | 151,000 |
Net decrease in cash and restricted cash | (3,504,000) | (5,297,000) |
Cash and restricted cash at beginning of period | 3,812,000 | 9,433,000 |
Cash and restricted cash at end of period | $ 308,000 | $ 4,136,000 |
Operations and Summary of Signi
Operations and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 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”) currently design, manufacture and market servo-control components and other advanced technology products for aerospace, military and medical applications. 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. Until 2023, the Company had operated historically under two business segments: Advanced Technology Group (“ATG”) and Consumer Products Group (“CPG”), which had been strategic business units that offered different products and services. Operations in ATG include the servo-control components (i.e., torque motors, control valves, etc.), and the CPG operations which were divested in 2023 included the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. 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. The Company derives its primary sales revenue from domestic customers, although a portion of finished products are for foreign end use. As communicated in the June 30, 2023 10-Q filing, the Company executed an Asset Purchase Agreement (“APA”) with the third party to sell the assets of OKC, which closed on August 1, 2023. Management intends to wind down the OKC operations during the remainder 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 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 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 nine-months ended September 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 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, 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 flows in thousands. September 30, December 31, 2023 2022 ($000’s omitted) Cash $ 158 $ 3,812 Restricted cash 150 — Total cash and restricted cash $ 308 $ 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 and savings accounts. The restricted cash of $150,000 as of September 30, 2023 (no outstanding balance as of December 31, 2022) represents collateral with a financial institution. 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 $124,000 and $116,000 as of September 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. 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 performance of repairs or services provided. 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 September 30, 2023, and December 31, 2022 under the guidance of ASC 460 the Company has recorded a warranty reserve of approximately $544,000 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 $636,000 and $602,000 at September 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 September 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 September 30, 2023 and September 30, 2022. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of September 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 nine-month periods ended September 30, 2023 and 2022, respectively. Income taxes paid amounted to approximately $2,000 and $50,000 for the nine-month periods ended September 30, 2023 and 2022, respectively. Interest paid during the nine-month periods ended September 30, 2023 and 2022 amounted to approximately $98,000 and $76,000, 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 over recent periods, the Company performed a test for recoverability of the long-lived assets by comparing the carrying value to the future undiscounted cash flows that are expected to 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 September 30, 2023 in accordance with Accounting Standards Codification (“ASC”) 360-10-45-9 Impairment or Disposal of Long-Lived Assets The Company has determined that no other impairment of long-lived assets existed as of September 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 to classifications adopted in the current period. Effective January 1, 2023, the research and development and certain insurance expenditures of approximately $568,000 and $1,470,000 for the three- and nine-months ended September 30, 2023 are reflected in selling, general and administrative operating expenses. Accordingly, approximately $377,000 and $1,029,000 for the three- and nine-months ended September 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 selling, general and administrative on the Condensed Consolidated Statements of Operations. Concentration of Credit Risks Financial instruments that potentially subject the Company to concentration of credit risks principally consist of cash accounts in financial institutions. Although the accounts exceed the federally insured deposit amount, management 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, The adoption of ASU 2016-13 did 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. |
Discontinued Operation and Asse
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation | 9 Months Ended |
Sep. 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 the Company's Form 10-Q as of June 30, 2023, the Company’s decision to sell certain assets and wind down the operations of OKC met the “held for sale” criteria and represented a strategic shift that had a significant impact on the Company’s operations and financial results under ASC 205-20-45-9 Discontinued Operations Under the terms of the APA, which divestiture closed on August 1, 2023, the Company sold inventory, machinery & equipment and intellectual property (patents & trademarks/tradenames) to the buyer for approximately $2,196,000 (original purchase price of $2,100,000 for the period ending June 30, 2023), which resulted in a change in purchase price and estimated loss on the sale of assets of $96,000 for the three-month period ending September 30, 2023 based on asset purchase reconciliations. In accordance with the sale, the Company evaluated whether the fair value of OKC assets sold ($2,196,000), less estimated costs to sell, exceeded the net carrying values. The Company concluded that the net carrying values exceeded the fair value, less estimated costs to sell, resulting in an estimated impairment charge of approximately $3,127,000 (original estimate of $3,223,000 for the period ending June 30, 2023). This impairment charge is included in the Loss from Discontinued Operation for the nine-month period ending September 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, 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 $1,208,000 ($1,129,000 for the period ending June 30, 2023 and included in the other accrued liabilities caption within the table presented below), were recorded for key employee retention agreements, employee severance agreements, and supplier purchase order obligations currently in negotiations. This resulted in additional costs of $79,000 for the three-month period ending September 30, 2023. This aggregate total of approximately $2,306,000 is included in the Loss from Discontinued Operation for the nine-month period ending September 30, 2023. Finally, OKC’s operating losses of approximately $403,000 and $1,893,000 for the three- and nine-month periods ended September 30, 2023, respectively, are also included in the Loss from Discontinued Operation (compared to Income from Discontinued Operation of $271,000 and $127,000 for the three- and nine-month periods ended September 30, 2022, respectively, as reclassified). Based on the above, the total Loss from Discontinued Operation, net of tax, is approximately $386,000 and $7,326,000 for the three- and nine-month periods ended September 30, 2023, respectively (compared to Income from Discontinued Operation of approximately $271,000 and $127,000 for the three- and nine-months ended September 30, 2022, respectively, as reclassified), and had a significant impact on the Company’s financial position in 2023. As shown in the Statement of Cash Flows and disclosed in Note 1, the sale of OKC assets occurred on August 1, 2023 and the cash proceeds received of $2,100,000 were used to paydown the outstanding line of credit during the third quarter (current balance outstanding of approximately $2,164,000 as of September 30, 2023 compared to approximately $3,697,000 outstanding as of June 30, 2023) and fund the discontinued operations. 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 September 30, 2023 September 30, 2022 ($000’s omitted) Net Sales $ 336 $ 2,168 Operating costs (739) (1,897) Loss/(income) from discontinued operation (403) 271 Loss from discontinued operation - impairment and divestiture costs (79) — Change in purchase price 96 — (Loss)/income from discontinued operation before income taxes (386) 271 Income tax benefit — — (Loss)/income from discontinued operation, net of tax $ (386) $ 271 Nine Months Ended Nine Months Ended September 30, 2023 September 30, 2022 ($000’s omitted) Net Sales $ 3,423 $ 6,650 Operating costs (5,316) (6,523) (Loss)/income from discontinued operation (1,893) 127 Loss from discontinued operation - impairment and divestiture costs (2,306) — Estimated loss on sale of assets (3,127) — (Loss)/income from discontinued operation before income taxes (7,326) 127 Income tax benefit — — (Loss)/income from discontinued operation, net of tax $ (7,326) $ 127 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: September 30, 2023 Dec 31, 2022 ($000’s omitted) Accounts receivable, net $ 335 $ 1,016 Prepaid assets 96 313 Inventories, net — 4,766 Machinery and equipment, net — 567 Patents and trademark, net — 140 Building and improvements, net 1,550 2,726 Assets related to discontinued operation $ 1,981 $ 9,528 Accounts payable $ 777 $ 1,272 Accrued employee compensation and other costs 964 473 Liabilities related to discontinued operation $ 1,741 $ 1,745 The OKC assets not being sold under the terms of the APA include accounts receivable, prepaid assets, and the building totaling $1,981,000 as of September 30, 2023. The Company retains and will liquidate these assets in conjunction with the wind down of the OKC operations during the remainder of 2023. The accounts receivable of approximately $335,000 represents amounts due from customers and from the buyer of OKC’s assets in accordance with the terms of the APA, and is net of a reserve for credit losses of approximately $100,000. In addition, the OKC liabilities not assumed under the terms of the APA include the accounts payable and accrued expenses totaling approximately $1,741,000 as of September 30, 2023. |
Inventories
Inventories | 9 Months Ended |
Sep. 30, 2023 | |
Inventories | |
Inventories | 3. Inventories September 30, December 31, 2023 2022 ($000’s omitted) Raw material and common parts $ 7,926 $ 7,199 Work-in-process 7,172 6,490 Finished goods 586 1,199 15,684 14,888 Less inventory reserve (636) (602) Total inventories $ 15,048 $ 14,286 Subassembly inventory of approximately $3,554,000 was reclassified from raw material and common parts to work-in-process as of September 30, 2023 ($3,504,000 was reclassified as of December 31, 2022). |
Property, Plant and Equipment
Property, Plant and Equipment | 9 Months Ended |
Sep. 30, 2023 | |
Property, Plant and Equipment | |
Property, Plant and Equipment | 4. Property, Plant and Equipment September 30, December 31, 2023 2022 ($000’s omitted) Buildings $ 8,411 $ 7,838 Machinery, equipment and tooling 15,305 14,526 Construction in progress 257 1,002 23,973 23,366 Less accumulated depreciation and amortization (16,801) (16,011) Total property, plant and equipment $ 7,172 $ 7,355 Depreciation and amortization expense amounted to approximately $272,000 and $230,000 for the three-months ended September 30, 2023 and 2022, respectively. Amortization expense primarily related to Right of Use (“ROU”) assets amounted to approximately $6,000 and $6,000 for the three months ended September 30, 2023 and 2022, respectively. Depreciation and amortization expense amounted to approximately $790,000 and $751,000 for the nine-months ended September 30, 2023 and 2022, respectively. Amortization expense, primarily related to ROU assets, amounted to approximately $18,000 and $18,000 for the nine-months ended September 30, 2023 and 2022, respectively. The Company’s ROU assets included in machinery, equipment and tooling had a net book value of approximately $166,000 as of September 30, 2023 ($185,000 as of December 31, 2022). As of September 30, 2023, there is approximately $257,000 ($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 $248,000 in CIP for machinery and equipment and approximately $9,000 for building improvements at the Advanced Technology Group. |
Indebtedness
Indebtedness | 9 Months Ended |
Sep. 30, 2023 | |
Indebtedness | |
Indebtedness | 5. Indebtedness September 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 9.5% as of September 30, 2023) (A) $ 2,164 $ — 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 2,164 501 Less current portion (2,164) (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 foreign accounts receivable balances, less any other specific reserves. In general terms, ineligible receivables are defined as invoices unpaid over 90 days. The balance outstanding on the Credit Facility is approximately $2,164,000 as of September 30, 2023 (no balance outstanding as of December 31, 2022). 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. In accordance with ASC 470-10-45-5 Classification of Revolving Credit Agreements Subject to Lock-Box Arrangements and Subjective Acceleration Clauses, 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 September 30, 2023. 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 September 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 September 30, 2023 ($10,000 outstanding as of December 31, 2022). Concerns about the Company’s ability to meet obligations as they become due were raised during the first half of 2023 based on the 2023 year-to-date net loss, the working capital requirements, and the bank refinancing required based on the previous banking relationship. However, the net loss from continuing operations was negatively impacted by non-recurring SG&A expenses (see MD&A) and income tax expense (see Note 8), both of which had a significant impact on the results from continuing operations. Also, the net loss from discontinued operation was driven by Management’s deliberate focus on exiting the CPG business segment, which resulted in significant, non-recurring impairment charges based on the fair value of OKC assets sold (see Note 2). Therefore, Management believes that the disposal of the unprofitable CPG segment, the continued execution of sequential revenue growth in 2023, the forecasted revenue and customer backlog for the remainder of 2023 and 2024, the continued production improvements and efficiencies resulting in improved gross margins, and the availability of funds under the new Credit Facility to support working capital needs, have alleviated any doubt regarding the Company’s ability to continue as a going concern. |
Postretirement Benefit Plan
Postretirement Benefit Plan | 9 Months Ended |
Sep. 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 September 30, 2023 and December 31, 2022 was approximately $4,083,000 and $4,062,000, respectively and has been accrued and reflected in Post Retirement Obligation in the accompanying Condensed Consolidated Balance Sheets. Benefit costs for the three-months ended September 30, 2023 and 2022 totaled $65,000 and $70,000, respectively. Benefit costs for the nine months ended September 30, 2023 and 2022 totaled $195,000 and $208,000, respectively. |
Shareholders' Equity
Shareholders' Equity | 9 Months Ended |
Sep. 30, 2023 | |
Shareholders' Equity | |
Shareholders' Equity | 7. Shareholders’ Equity Nine-month Period Ended September 30, 2023 Accumulated Other Capital in Total Retained Comprehensive excess of Treasury shareholders’ Earnings Income/(Loss) Common Stock par value ESOT stock equity December 31, 2022 $ 23,741 $ (2,337) $ 523 $ 14,556 $ (157) $ (1,214) $ 35,112 Retirement benefits adjustment — 13 — — — — 13 Stock based compensation — — — 17 — 24 41 Net Loss (1,547) — — — — — (1,547) March 31, 2023 $ 22,194 $ (2,324) $ 523 $ 14,573 $ (157) $ (1,190) $ 33,619 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 Retirement benefits adjustment — 17 — — — — 17 Stock based compensation — — 1 16 — 20 37 Net Loss (205) — — — — — (205) September 30, 2023 $ 12,489 $ (2,295) $ 525 $ 14,603 $ (157) $ (1,152) $ 24,013 Nine-month Period Ended September 30, 2022 Accumulated Other Capital in Total Retained Comprehensive excess of Treasury shareholders’ Earnings Income/(Loss) 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 Retirement benefits adjustment — 22 — — — — 22 Stock based compensation — — — 26 — 33 59 Net Loss (316) — — — — — (316) September 30, 2022 $ 25,057 $ (3,842) $ 523 $ 14,535 $ (258) $ (1,258) $ 34,757 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 September 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 nine-month periods ended September 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 nine-month period ended September 30, 2023 and September 30, 2022 is approximately $110,000 and $126,000, respectively, of stock-based compensation expense related to the restrictive share awards. The Company has approximately $276,000 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 (15,794) $ 11.18 Unvested at September 30, 2023 24,110 $ 11.43 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 Nine Months Ended September 30, September 30, 2023 2022 2023 2022 ($000’s omitted except per share data) Income/(loss) from continuing operations $ 182 $ (587) $ (3,926) $ (928) (Loss)/income from discontinued operation (386) 271 (7,326) 127 Net loss $ (204) $ (316) $ (11,252) $ (801) Weighted average common shares outstanding (basic) 2,472 2,424 2,465 2,427 Unvested restricted stock 24 15 24 15 Weighted average common shares outstanding (diluted) 2,496 2,442 2,489 2,442 Basic and diluted earnings per share Continuing operations $ 0.07 $ (0.24) $ (1.59) $ (0.38) Discontinued operation (0.16) 0.11 (2.97) 0.05 Basic and diluted earnings per share $ (0.09) $ (0.13) $ (4.56) $ (0.33) 8. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2023 | |
Income Taxes | |
Income Taxes | 8. Income Taxes The income tax expense in the Condensed Consolidated Statements of Operations is $0 and approximately $1,063,000 for the three- and nine-months ended September 30, 2023, respectively, compared to an income tax benefit of approximately $154,000 and $234,000 for the three- and nine-months ended September 30, 2022, respectively. The tax expense is the result of recording a valuation allowance (tax expense) during the second quarter against the net deferred tax assets. The valuation allowance 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 Condensed Consolidated Balance Sheet as of September 30, 2023. The effective tax rate expense for the three-and nine-month month period ended September 30, 2023, is 0% and 10.4%, respectively, compared to an effective tax rate benefit for the three-and nine-month period ended September 30, 2022, of 32.8% and 22.6%, 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 assets in 2023. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2023 | |
Commitments and Contingencies | |
Commitments and Contingencies | 9. Commitments and Contingencies 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. During the third quarter of 2023, the Company entered into further discussions with a particular customer regarding product liability costs and customer damages (the claim) resulting from non-conforming product shipped to the customer in the prior years. The Company’s insurance carrier was put on notice of this claim in 2022. The Company has fully cooperated with the insurance carrier’s investigation of the claim, which remains ongoing. While investigating the claim, Management previously determined that the risk of loss was remote. According to the customer’s claim, a non-conformance occurred due to the existence of foreign object debris in the product, resulting in damages to the customer and to the customer’s end user. Based on the latest correspondence, management has determined that the current range of exposure for this claim is approximately $250,000 to $1,000,000. Accordingly, the Company has reserved $500,000 as a reasonable settlement amount as of September 30, 2023. The Company’s insurance carrier has not issued any written coverage position, reservation of rights, or denial of coverage relative to the claim. The Company anticipates settling this claim with the customer by the first half of 2024, with a portion of such settlement expected to be covered by insurance. 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. |
Customer and Supplier Concentra
Customer and Supplier Concentration | 9 Months Ended |
Sep. 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 nine months ended September 30, 2023 and 2022, approximately 90% and 85%, respectively, were derived from the sale of products to a small base of customers. During the nine months ended September 30, 2023, approximately 15% of our purchases for products were derived from one supplier (no significant suppliers for the nine months ended September 30, 2022). |
Operations and Summary of Sig_2
Operations and Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 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”) currently design, manufacture and market servo-control components and other advanced technology products for aerospace, military and medical applications. 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. Until 2023, the Company had operated historically under two business segments: Advanced Technology Group (“ATG”) and Consumer Products Group (“CPG”), which had been strategic business units that offered different products and services. Operations in ATG include the servo-control components (i.e., torque motors, control valves, etc.), and the CPG operations which were divested in 2023 included the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. 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. The Company derives its primary sales revenue from domestic customers, although a portion of finished products are for foreign end use. As communicated in the June 30, 2023 10-Q filing, the Company executed an Asset Purchase Agreement (“APA”) with the third party to sell the assets of OKC, which closed on August 1, 2023. Management intends to wind down the OKC operations during the remainder 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 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 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 nine-months ended September 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 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, 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 flows in thousands. September 30, December 31, 2023 2022 ($000’s omitted) Cash $ 158 $ 3,812 Restricted cash 150 — Total cash and restricted cash $ 308 $ 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 and savings accounts. The restricted cash of $150,000 as of September 30, 2023 (no outstanding balance as of December 31, 2022) represents collateral with a financial institution. |
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 $124,000 and $116,000 as of September 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. 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 performance of repairs or services provided. 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 September 30, 2023, and December 31, 2022 under the guidance of ASC 460 the Company has recorded a warranty reserve of approximately $544,000 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 $636,000 and $602,000 at September 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 September 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 September 30, 2023 and September 30, 2022. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of September 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 nine-month periods ended September 30, 2023 and 2022, respectively. Income taxes paid amounted to approximately $2,000 and $50,000 for the nine-month periods ended September 30, 2023 and 2022, respectively. Interest paid during the nine-month periods ended September 30, 2023 and 2022 amounted to approximately $98,000 and $76,000, 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 over recent periods, the Company performed a test for recoverability of the long-lived assets by comparing the carrying value to the future undiscounted cash flows that are expected to 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 September 30, 2023 in accordance with Accounting Standards Codification (“ASC”) 360-10-45-9 Impairment or Disposal of Long-Lived Assets The Company has determined that no other impairment of long-lived assets existed as of September 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 to classifications adopted in the current period. Effective January 1, 2023, the research and development and certain insurance expenditures of approximately $568,000 and $1,470,000 for the three- and nine-months ended September 30, 2023 are reflected in selling, general and administrative operating expenses. Accordingly, approximately $377,000 and $1,029,000 for the three- and nine-months ended September 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 selling, general and administrative on the Condensed Consolidated Statements of Operations. |
Concentration of Credit Risks | Concentration of Credit Risks Financial instruments that potentially subject the Company to concentration of credit risks principally consist of cash accounts in financial institutions. Although the accounts exceed the federally insured deposit amount, management 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, The adoption of ASU 2016-13 did 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. |
Operations and Summary of Sig_3
Operations and Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 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 | September 30, December 31, 2023 2022 ($000’s omitted) Cash $ 158 $ 3,812 Restricted cash 150 — Total cash and restricted cash $ 308 $ 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 |
Discontinued Operation and As_2
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation (Tables) | 9 Months Ended |
Sep. 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 September 30, 2023 September 30, 2022 ($000’s omitted) Net Sales $ 336 $ 2,168 Operating costs (739) (1,897) Loss/(income) from discontinued operation (403) 271 Loss from discontinued operation - impairment and divestiture costs (79) — Change in purchase price 96 — (Loss)/income from discontinued operation before income taxes (386) 271 Income tax benefit — — (Loss)/income from discontinued operation, net of tax $ (386) $ 271 Nine Months Ended Nine Months Ended September 30, 2023 September 30, 2022 ($000’s omitted) Net Sales $ 3,423 $ 6,650 Operating costs (5,316) (6,523) (Loss)/income from discontinued operation (1,893) 127 Loss from discontinued operation - impairment and divestiture costs (2,306) — Estimated loss on sale of assets (3,127) — (Loss)/income from discontinued operation before income taxes (7,326) 127 Income tax benefit — — (Loss)/income from discontinued operation, net of tax $ (7,326) $ 127 September 30, 2023 Dec 31, 2022 ($000’s omitted) Accounts receivable, net $ 335 $ 1,016 Prepaid assets 96 313 Inventories, net — 4,766 Machinery and equipment, net — 567 Patents and trademark, net — 140 Building and improvements, net 1,550 2,726 Assets related to discontinued operation $ 1,981 $ 9,528 Accounts payable $ 777 $ 1,272 Accrued employee compensation and other costs 964 473 Liabilities related to discontinued operation $ 1,741 $ 1,745 |
Inventories (Tables)
Inventories (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Inventories | |
Schedule of inventories | September 30, December 31, 2023 2022 ($000’s omitted) Raw material and common parts $ 7,926 $ 7,199 Work-in-process 7,172 6,490 Finished goods 586 1,199 15,684 14,888 Less inventory reserve (636) (602) Total inventories $ 15,048 $ 14,286 |
Property, Plant and Equipment (
Property, Plant and Equipment (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Property, Plant and Equipment | |
Schedule of property, plant and equipment | September 30, December 31, 2023 2022 ($000’s omitted) Buildings $ 8,411 $ 7,838 Machinery, equipment and tooling 15,305 14,526 Construction in progress 257 1,002 23,973 23,366 Less accumulated depreciation and amortization (16,801) (16,011) Total property, plant and equipment $ 7,172 $ 7,355 |
Indebtedness (Tables)
Indebtedness (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Indebtedness | |
Schedule of long-term debt | September 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 9.5% as of September 30, 2023) (A) $ 2,164 $ — 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 2,164 501 Less current portion (2,164) (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 foreign accounts receivable balances, less any other specific reserves. In general terms, ineligible receivables are defined as invoices unpaid over 90 days. The balance outstanding on the Credit Facility is approximately $2,164,000 as of September 30, 2023 (no balance outstanding as of December 31, 2022). 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. In accordance with ASC 470-10-45-5 Classification of Revolving Credit Agreements Subject to Lock-Box Arrangements and Subjective Acceleration Clauses, 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 September 30, 2023. 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 September 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 September 30, 2023 ($10,000 outstanding as of December 31, 2022). |
Shareholders' Equity (Tables)
Shareholders' Equity (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Shareholders' Equity | |
Schedule of stockholders equity | Nine-month Period Ended September 30, 2023 Accumulated Other Capital in Total Retained Comprehensive excess of Treasury shareholders’ Earnings Income/(Loss) Common Stock par value ESOT stock equity December 31, 2022 $ 23,741 $ (2,337) $ 523 $ 14,556 $ (157) $ (1,214) $ 35,112 Retirement benefits adjustment — 13 — — — — 13 Stock based compensation — — — 17 — 24 41 Net Loss (1,547) — — — — — (1,547) March 31, 2023 $ 22,194 $ (2,324) $ 523 $ 14,573 $ (157) $ (1,190) $ 33,619 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 Retirement benefits adjustment — 17 — — — — 17 Stock based compensation — — 1 16 — 20 37 Net Loss (205) — — — — — (205) September 30, 2023 $ 12,489 $ (2,295) $ 525 $ 14,603 $ (157) $ (1,152) $ 24,013 Nine-month Period Ended September 30, 2022 Accumulated Other Capital in Total Retained Comprehensive excess of Treasury shareholders’ Earnings Income/(Loss) 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 Retirement benefits adjustment — 22 — — — — 22 Stock based compensation — — — 26 — 33 59 Net Loss (316) — — — — — (316) September 30, 2022 $ 25,057 $ (3,842) $ 523 $ 14,535 $ (258) $ (1,258) $ 34,757 |
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 (15,794) $ 11.18 Unvested at September 30, 2023 24,110 $ 11.43 |
Schedule of earnings per share | Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 ($000’s omitted except per share data) Income/(loss) from continuing operations $ 182 $ (587) $ (3,926) $ (928) (Loss)/income from discontinued operation (386) 271 (7,326) 127 Net loss $ (204) $ (316) $ (11,252) $ (801) Weighted average common shares outstanding (basic) 2,472 2,424 2,465 2,427 Unvested restricted stock 24 15 24 15 Weighted average common shares outstanding (diluted) 2,496 2,442 2,489 2,442 Basic and diluted earnings per share Continuing operations $ 0.07 $ (0.24) $ (1.59) $ (0.38) Discontinued operation (0.16) 0.11 (2.97) 0.05 Basic and diluted earnings per share $ (0.09) $ (0.13) $ (4.56) $ (0.33) 8. |
Operations and Summary of Sig_4
Operations and Summary of Significant Accounting Policies - Cash and Restricted Cash (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 | Sep. 30, 2022 | Dec. 31, 2021 |
Reconciliation of cash and restricted cash to the amounts in the statement of cash flow | ||||
Cash | $ 158,000 | $ 3,812,000 | ||
Restricted cash | 150,000 | 0 | ||
Total cash and restricted cash | $ 308,000 | $ 3,812,000 | $ 4,136,000 | $ 9,433,000 |
Operations and Summary of Sig_5
Operations and Summary of Significant Accounting Policies - Estimated useful lives of depreciable properties (Details) | Sep. 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 |
Operations and Summary of Sig_6
Operations and Summary of Significant Accounting Policies - Additional Information (Details) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2023 USD ($) | Sep. 30, 2022 USD ($) | Sep. 30, 2023 USD ($) Y segment | Sep. 30, 2022 USD ($) | Dec. 31, 2022 USD ($) | |
Operations and Summary of Significant Accounting Policies | |||||
Number of operating segments | segment | 2 | ||||
Allowance for credit losses | $ 124,000 | $ 124,000 | $ 116,000 | ||
Warranty period | 27 months | ||||
Warranty reserve | 544,000 | $ 544,000 | 581,000 | ||
Inventory reserve | 636,000 | 636,000 | 602,000 | ||
Income taxes refunds received | 0 | $ 811,000 | |||
Income taxes paid | 2,000 | 50,000 | |||
Interest paid | 98,000 | 76,000 | |||
Impairment of long-lived assets | 0 | $ 0 | |||
ATG Research and development expenditures | |||||
Operations and Summary of Significant Accounting Policies | |||||
Research and Development Costs | $ 568,000 | $ 1,470,000 | |||
Selling, general and administrative | |||||
Operations and Summary of Significant Accounting Policies | |||||
Research and Development Costs | $ 377,000 | $ 1,029,000 | |||
Minimum | |||||
Operations and Summary of Significant Accounting Policies | |||||
Number of year's supply | Y | 1 | ||||
Period inventory is expected to be used | 2 years |
Discontinued Operation and As_3
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||||
Aug. 01, 2023 | Jun. 30, 2023 | Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | |
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation | |||||||
(Loss)/income from discontinued operation | $ (386,000) | $ 271,000 | $ (7,326,000) | $ 127,000 | |||
Line of credit | 2,164,000 | 2,164,000 | $ 0 | ||||
OKC | |||||||
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation | |||||||
Consideration of expenses | $ 2,196,000 | ||||||
Loss on sale of assets | 96,000 | ||||||
Fair value on sale of assets | (2,196,000) | ||||||
Estimated wind down costs | 1,208,000 | ||||||
Other Accrued Liabilities | $ 1,129,000 | ||||||
Additional Costs | 79,000 | ||||||
Cash proceeds | 2,100,000 | ||||||
Line of credit | 3,697,000 | 2,164,000 | 2,164,000 | ||||
Impairment charges | 3,127,000 | ||||||
Held for sale | OKC | |||||||
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation | |||||||
Consideration for sale of assets | 2,100,000 | ||||||
Loss on sale of assets | 96,000 | (3,127,000) | |||||
Impairment charge related to the real property | $ 1,098,000 | ||||||
Impairment and divestiture costs | 79,000 | 2,306,000 | |||||
Operating loss | (403,000) | 271,000 | (1,893,000) | 127,000 | |||
(Loss)/income from discontinued operation | $ (386,000) | $ 271,000 | $ (7,326,000) | $ 127,000 | |||
Held for sale | OKC | CPG segment | |||||||
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation | |||||||
Impairment charge | $ 3,223,000 |
Discontinued Operation and As_4
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 | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Results of operations classified as a discontinued operation, net of tax | ||||
(Loss)/income from discontinued operation, net of tax | $ (386,000) | $ 271,000 | $ (7,326,000) | $ 127,000 |
OKC | ||||
Results of operations classified as a discontinued operation, net of tax | ||||
Change in purchase price | 96,000 | |||
Held for sale | OKC | ||||
Results of operations classified as a discontinued operation, net of tax | ||||
Net Sales | 336,000 | 2,168,000 | 3,423,000 | 6,650,000 |
Operating costs | (739,000) | (1,897,000) | (5,316,000) | (6,523,000) |
Loss/(income) from discontinued operation | (403,000) | 271,000 | (1,893,000) | 127,000 |
Loss from discontinued operation - impairment and divestiture costs | (79,000) | (2,306,000) | ||
Change in purchase price | 96,000 | (3,127,000) | ||
(Loss)/income from discontinued operation before income taxes | (386,000) | 271,000 | (7,326,000) | 127,000 |
(Loss)/income from discontinued operation, net of tax | $ (386,000) | $ 271,000 | $ (7,326,000) | $ 127,000 |
Discontinued Operation and As_5
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation - Discontinued operation in the Condensed Consolidated Balance Sheets (Details) - USD ($) $ in Thousands | Sep. 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 | $ 1,741 | $ 1,745 |
Held for sale | 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 | 335 | 1,016 |
Prepaid assets | 96 | 313 |
Inventories, net | 4,766 | |
Patents and trademark, net | 140 | |
Assets related to discontinued operation | 1,981 | 9,528 |
Accounts payable | 777 | 1,272 |
Accrued employee compensation and other costs | 964 | 473 |
Liabilities related to discontinued operation | 1,741 | 1,745 |
Held for sale | 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 | 567 | |
Held for sale | 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 |
Discontinued Operation and As_6
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation - Additional Information (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation | ||
Liabilities not assumed | $ 1,741,000 | $ 1,745,000 |
Held for sale | OKC | ||
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation | ||
Total assets not being sold | 1,981,000 | 9,528,000 |
Accounts receivable, net of reserve | 335,000 | 1,016,000 |
Liabilities not assumed | 1,741,000 | $ 1,745,000 |
Wind down | OKC | ||
Discontinued Operation and Assets and Liabilities Related to Discontinued Operation | ||
Total assets not being sold | 1,981,000 | |
Accounts receivable, net of reserve | 335,000 | |
Reserve for uncollectible accounts | 100,000 | |
Liabilities not assumed | $ 1,741,000 |
Inventories (Details)
Inventories (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Inventories | ||
Raw material and common parts | $ 7,926,000 | $ 7,199,000 |
Work-in-process | 7,172,000 | 6,490,000 |
Finished goods | 586,000 | 1,199,000 |
Inventory, Gross | 15,684,000 | 14,888,000 |
Less inventory reserve | (636,000) | (602,000) |
Total inventories | 15,048,000 | 14,286,000 |
Raw materials and work in progress | $ 3,554,000 | $ 3,504,000 |
Property, Plant and Equipment -
Property, Plant and Equipment - Summary of property, plant and equipment (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Property, Plant and Equipment | ||
Property, plant and equipment, Gross | $ 23,973,000 | $ 23,366,000 |
Less accumulated depreciation and amortization | (16,801,000) | (16,011,000) |
Total property, plant and equipment | 7,172,000 | 7,355,000 |
Buildings | ||
Property, Plant and Equipment | ||
Property, plant and equipment, Gross | 8,411,000 | 7,838,000 |
Machinery, equipment and tooling | ||
Property, Plant and Equipment | ||
Property, plant and equipment, Gross | 15,305,000 | 14,526,000 |
Construction in progress | ||
Property, Plant and Equipment | ||
Property, plant and equipment, Gross | $ 257,000 | $ 1,002,000 |
Property, Plant and Equipment_2
Property, Plant and Equipment - Additional Information (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | |
Property, Plant and Equipment | |||||
Depreciation and amortization expense | $ 272,000 | $ 230,000 | $ 790,000 | $ 751,000 | |
Amortization expense | 6,000 | $ 6,000 | 18,000 | $ 18,000 | |
Property, plant and equipment, Gross | 23,973,000 | 23,973,000 | $ 23,366,000 | ||
Machinery and equipment | |||||
Property, Plant and Equipment | |||||
ROU assets | 166,000 | 166,000 | 185,000 | ||
Property, plant and equipment, Gross | 15,305,000 | 15,305,000 | 14,526,000 | ||
Construction in progress | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | 257,000 | 257,000 | $ 1,002,000 | ||
Construction in progress (CIP) machinery & equipment | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | 248,000 | 248,000 | |||
Construction in progress (CIP) building improvements | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | $ 9,000 | $ 9,000 |
Indebtedness - Summary of long
Indebtedness - Summary of long term debt (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Indebtedness | ||
Long-term debt, Total | $ 2,164,000 | $ 501,000 |
Less current portion | (2,164,000) | (501,000) |
Long term debt | 0 | 0 |
Line of credit payable to a financial institution; Interest rate is the greater of prime or 7% plus 1% per annum. (Interest rate 9.5% as of September 30, 2023) | ||
Indebtedness | ||
Long-term debt, Total | 2,164,000 | 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) | ||
Indebtedness | ||
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) | ||
Indebtedness | ||
Long-term debt, Total | $ 0 | $ 10,000 |
Indebtedness - Summary of lon_2
Indebtedness - Summary of long term debt information (Details) | 9 Months Ended |
Sep. 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 | |
Indebtedness | |
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 | |
Indebtedness | |
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 | |
Indebtedness | |
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 | |
Indebtedness | |
Percentage of floating interest rate payable | 1.8693% |
LIBOR | |
Indebtedness | |
Percentage of floating interest rate payable | 9.50% |
LIBOR | Line of credit (LOC) | |
Indebtedness | |
Percentage of fixed interest rate payable | 7% |
Spread on variable rate | 1% |
Indebtedness - Additional Infor
Indebtedness - Additional Information (Details) | 9 Months Ended | ||||
Jun. 27, 2023 USD ($) | Sep. 30, 2023 USD ($) item | Dec. 31, 2022 USD ($) | Jul. 09, 2021 USD ($) | Jun. 28, 2018 USD ($) | |
Indebtedness | |||||
Line of credit | $ 2,164,000 | $ 0 | |||
Outstanding balance | 2,164,000 | 501,000 | |||
Revolving credit facility | |||||
Indebtedness | |||||
Term of agreement | 3 years | ||||
Maximum availability | $ 7,000,000 | ||||
Term of invoices unpaid defined as ineligible receivables | 90 days | ||||
Percentage of fixed interest rate payable | 7% | ||||
Spread on variable rate | 1% | ||||
Loan origination costs capitalized | $ 104,000 | ||||
Balance outstanding | $ 2,164,000 | ||||
Number of financial covenants | item | 2 | ||||
Minimum tangible net worth | $ 20,000,000 | ||||
Minimum working capital | 10,000,000 | ||||
Revolving credit facility | ATG | |||||
Indebtedness | |||||
Borrowing base as percentage of eligible domestic and international accounts receivable balances | 85% | ||||
Line of credit (LOC) | |||||
Indebtedness | |||||
Outstanding balance | $ 2,164,000 | 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) | |||||
Indebtedness | |||||
Term of agreement | 60 months | ||||
Loan line of credit | $ 1,000,000 | ||||
Outstanding balance | $ 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) | |||||
Indebtedness | |||||
Term of agreement | 60 months | ||||
Outstanding balance | $ 0 | $ 10,000 | |||
Lease line of credit | $ 1,000,000 |
Postretirement Benefit Plan (De
Postretirement Benefit Plan (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | |
Postretirement Benefit Plan | |||||
Future obligation of benefits | $ 4,083,000 | $ 4,083,000 | $ 4,062,000 | ||
Benefit cost | $ 65,000 | $ 70,000 | $ 195,000 | $ 208,000 |
Shareholders' Equity - Summary
Shareholders' Equity - Summary of common shareholders' equity (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||||||
Sep. 30, 2023 | Jun. 30, 2023 | Mar. 31, 2023 | Sep. 30, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Shareholders' Equity | ||||||||
Beginning balance | $ 24,164 | $ 33,619 | $ 35,112 | $ 34,992 | $ 35,738 | $ 35,366 | $ 35,112 | $ 35,366 |
Retirement benefits adjustment | 17 | 12 | 13 | 22 | 22 | 22 | ||
Stock based compensation | 37 | 33 | 41 | 59 | 42 | 25 | ||
Net Income (Loss) | (204) | (9,500) | (1,547) | (316) | (810) | 325 | (11,252) | (801) |
Ending balance | 24,013 | 24,164 | 33,619 | 34,757 | 34,992 | 35,738 | 24,013 | 34,757 |
Retained earnings | ||||||||
Shareholders' Equity | ||||||||
Beginning balance | 12,694 | 22,194 | 23,741 | 25,373 | 26,183 | 25,858 | 23,741 | 25,858 |
Retirement benefits adjustment | 0 | 0 | 0 | 0 | 0 | 0 | ||
Stock based compensation | 0 | 0 | 0 | 0 | 0 | 0 | ||
Net Income (Loss) | (205) | (9,500) | (1,547) | (316) | (810) | 325 | ||
Ending balance | 12,489 | 12,694 | 22,194 | 25,057 | 25,373 | 26,183 | 12,489 | 25,057 |
Accumulated Other Comprehensive Loss | ||||||||
Shareholders' Equity | ||||||||
Beginning balance | (2,312) | (2,324) | (2,337) | (3,864) | (3,886) | (3,908) | (2,337) | (3,908) |
Retirement benefits adjustment | 17 | 12 | 13 | 22 | 22 | 22 | ||
Stock based compensation | 0 | 0 | 0 | 0 | 0 | 0 | ||
Net Income (Loss) | 0 | 0 | 0 | 0 | 0 | 0 | ||
Ending balance | (2,295) | (2,312) | (2,324) | (3,842) | (3,864) | (3,886) | (2,295) | (3,842) |
Common Stock | ||||||||
Shareholders' Equity | ||||||||
Beginning balance | 524 | 523 | 523 | 523 | 523 | 523 | 523 | 523 |
Retirement benefits adjustment | 0 | 0 | 0 | 0 | 0 | 0 | ||
Stock based compensation | 1 | 1 | 0 | 0 | 0 | 0 | ||
Net Income (Loss) | 0 | 0 | 0 | 0 | 0 | 0 | ||
Ending balance | 525 | 524 | 523 | 523 | 523 | 523 | 525 | 523 |
Capital in excess of par value | ||||||||
Shareholders' Equity | ||||||||
Beginning balance | 14,587 | 14,573 | 14,556 | 14,509 | 14,502 | 14,500 | 14,556 | 14,500 |
Retirement benefits adjustment | 0 | 0 | 0 | 0 | 0 | 0 | ||
Stock based compensation | 16 | 14 | 17 | 26 | 7 | 2 | ||
Net Income (Loss) | 0 | 0 | 0 | 0 | 0 | 0 | ||
Ending balance | 14,603 | 14,587 | 14,573 | 14,535 | 14,509 | 14,502 | 14,603 | 14,535 |
ESOT | ||||||||
Shareholders' Equity | ||||||||
Beginning balance | (157) | (157) | (157) | (258) | (258) | (258) | (157) | (258) |
Retirement benefits adjustment | 0 | 0 | 0 | 0 | 0 | 0 | ||
Stock based compensation | 0 | 0 | 0 | 0 | 0 | 0 | ||
Net Income (Loss) | 0 | 0 | 0 | 0 | 0 | 0 | ||
Ending balance | (157) | (157) | (157) | (258) | (258) | (258) | (157) | (258) |
Treasury stock | ||||||||
Shareholders' Equity | ||||||||
Beginning balance | (1,172) | (1,190) | (1,214) | (1,291) | (1,326) | (1,349) | (1,214) | (1,349) |
Retirement benefits adjustment | 0 | 0 | 0 | 0 | 0 | 0 | ||
Stock based compensation | 20 | 18 | 24 | 33 | 35 | 23 | ||
Net Income (Loss) | 0 | 0 | 0 | 0 | 0 | 0 | ||
Ending balance | $ (1,152) | $ (1,172) | $ (1,190) | $ (1,258) | $ (1,291) | $ (1,326) | $ (1,152) | $ (1,258) |
Shareholders' Equity - Share Re
Shareholders' Equity - Share Repurchase Program (Details) - Share Repurchase Program - shares | 9 Months Ended | |
Sep. 30, 2023 | Sep. 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 |
Shareholders' Equity - 2022 Equ
Shareholders' Equity - 2022 Equity Incentive Plan (Details) - USD ($) | 9 Months Ended | ||
Jun. 09, 2023 | Sep. 30, 2023 | Sep. 30, 2022 | |
Shareholders' Equity | |||
Stock-based compensation expense related to the restrictive share awards | $ 110,000 | $ 126,000 | |
Restricted share awards | |||
Shareholders' Equity | |||
Compensation expense not yet recognized | $ 276,000 | ||
2022 Equity Incentive Plan | Non-employee directors | |||
Shareholders' Equity | |||
Number of restricted stock issued | 10,410 | ||
Compensation expense not yet recognized | $ 125,000 |
Shareholders' Equity - Restrict
Shareholders' Equity - Restricted stock activity (Details) | 9 Months Ended |
Sep. 30, 2023 $ / shares shares | |
Restricted Share Activity: | |
Unvested at the beginning | shares | 27,010 |
Granted | shares | 12,894 |
Vested | shares | (15,794) |
Unvested at the end | shares | 24,110 |
Weighted Average Grant Date Fair Value | |
Unvested, beginning balance | $ / shares | $ 11.09 |
Granted | $ / shares | 11.85 |
Vested | $ / shares | 11.18 |
Unvested, ending balance | $ / shares | $ 11.43 |
Shareholders' Equity - Calculat
Shareholders' Equity - Calculation of earning per share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||||||
Sep. 30, 2023 | Jun. 30, 2023 | Mar. 31, 2023 | Sep. 30, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Shareholders' Equity | ||||||||
Income/(loss) from continuing operations | $ 182 | $ (587) | $ (3,926) | $ (928) | ||||
(Loss)/income from discontinued operation | (386) | 271 | (7,326) | 127 | ||||
Net loss | $ (204) | $ (9,500) | $ (1,547) | $ (316) | $ (810) | $ 325 | $ (11,252) | $ (801) |
Weighted average common shares outstanding (basic) | 2,472 | 2,424 | 2,465 | 2,427 | ||||
Unvested restricted stock | 24 | 15 | 24 | 15 | ||||
Weighted average common shares outstanding (diluted) | 2,496 | 2,442 | 2,489 | 2,442 | ||||
Basic | ||||||||
Continuing operations | $ 0.07 | $ (0.24) | $ (1.59) | $ (0.38) | ||||
Discontinued operation | (0.16) | 0.11 | (2.97) | 0.05 | ||||
Basic earnings per share | (0.09) | (0.13) | (4.56) | (0.33) | ||||
Diluted | ||||||||
Continuing operations | 0.07 | (0.24) | (1.59) | (0.38) | ||||
Discontinued operation | (0.16) | 0.11 | (2.97) | 0.05 | ||||
Diluted earnings per share | $ (0.09) | $ (0.13) | $ (4.56) | $ (0.33) |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Income Taxes | ||||
Income tax expense (benefit) | $ 0 | $ (154,000) | $ 1,063,000 | $ (234,000) |
Effective tax rate expense | 0% | 32.80% | 10.40% | 22.60% |
Effective tax rate | 21% |
Commitments and Contingencies (
Commitments and Contingencies (Details) | 3 Months Ended | 9 Months Ended |
Sep. 30, 2023 USD ($) | Sep. 30, 2023 USD ($) | |
Commitments and Contingencies | ||
Damages sought value | $ 5,000,000 | |
Insured amount | 3,000,000 | |
Retention amount | $ 250,000 | 250,000 |
Excess coverage policy | 3,000,000 | |
Payment as retention from excess coverage policy | 1,000,000 | 1,000,000 |
Reasonable settlement amount | $ 500,000 | |
Minimum | ||
Commitments and Contingencies | ||
Current range of exposure for this claim is approximately | 250,000 | |
Maximum | ||
Commitments and Contingencies | ||
Current range of exposure for this claim is approximately | $ 1,000,000 | |
Former CEO | Minimum | ||
Commitments and Contingencies | ||
Multiplier of severance payment with average annual compensation | 2.99 | |
Aero, Inc. | ||
Commitments and Contingencies | ||
Gain or loss on litigation | $ 0 |
Customer and Supplier Concent_2
Customer and Supplier Concentration (Details) - ATG | 9 Months Ended | |
Sep. 30, 2023 | Sep. 30, 2022 | |
Sale | Customer concentration | ||
Customer and Supplier Concentration | ||
Concentration of risk (as a percent) | 90% | 85% |
Purchases | Supplier concentration | ||
Customer and Supplier Concentration | ||
Concentration of risk (as a percent) | 15% |
Pay vs Performance Disclosure
Pay vs Performance Disclosure - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||||||
Sep. 30, 2023 | Jun. 30, 2023 | Mar. 31, 2023 | Sep. 30, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Pay vs Performance Disclosure | ||||||||
Net Income (Loss) | $ (204) | $ (9,500) | $ (1,547) | $ (316) | $ (810) | $ 325 | $ (11,252) | $ (801) |
Insider Trading Arrangements
Insider Trading Arrangements | 3 Months Ended |
Sep. 30, 2023 | |
Trading Arrangements, by Individual | |
Material Terms of Trading Arrangement | (c) Trading Plans During the three months ended September 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 |