svt20240630_10q.htm

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2024

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

Commission File No. 1-07109

SERVOTRONICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	16-0837866
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification No.)

1110 Maple Street

Elma, New York 14059

(Address of principal executive offices) (zip code)

(716) 655-5990

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common Stock	SVT	NYSE American

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒

No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒

No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☒

No ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at July 26, 2024
Common Stock, $.20 par value		2,557,927

Table of Contents

INDEX

			Page No.

	PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements (Unaudited):

		a) Condensed Consolidated Balance Sheets, June 30, 2024 and December 31, 2023 (Audited)	3

		b) Condensed Consolidated Statements of Operations for the three-and six-months ended June 30, 2024 and 2023	4

		c) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three-and six-months ended June 30, 2024 and 2023	5

		d) Condensed Consolidated Statements of Cash Flows for the six-months ended June 30, 2024 and 2023	6

		e) Notes to Condensed Consolidated Financial Statements	7

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.		Controls and Procedures	28

	PART II. OTHER INFORMATION

Item 1.		Legal Proceedings	29

Item 1A.		Risk Factors	29

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.		Defaults Upon Senior Securities	29

Item 4.		Mine Safety Disclosures	29

Item 5.		Other Information	29

Item 6.		Exhibits	29

Forward-Looking Statements			30

Signatures			31

- 2 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share data)

	*June 30,*			*December 31,*
	*2024*			*2023*
	(Unaudited)			(Audited)
Current assets:
Cash	$	119		$	95
Cash, restricted		150			150
Accounts receivable, net		10,706			12,065
Inventories, net		15,830			14,198
Prepaid and other current assets		945			1,507
Assets related to discontinued operation		1,480			1,552
Total current assets		29,230			29,567

Property, plant and equipment, net		7,082			6,978
Other non-current assets		42			42
Total Assets	$	36,354		$	36,587

Liabilities and Shareholders' Equity
Current liabilities:
Line of credit	$	1,473		$	2,103
Current portion of post retirement obligation		97			97
Accounts payable		2,432			2,061
Accrued employee compensation and benefits costs		989			1,003
Accrued warranty		449			542
Other accrued liabilities		1,827			1,909
Liabilities related to discontinued operation		24			213
Total current liabilities		7,291			7,928

Post retirement obligation		4,202			4,165

Shareholders' equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,629,052 shares; outstanding 2,531,175 (2,514,775 - 2023) shares		525			525
Capital in excess of par value		14,762			14,617
Retained earnings		13,127			12,954
Accumulated other comprehensive loss		(2,350	)		(2,389	)
Employee stock ownership trust commitment		(56	)		(56	)
Treasury stock, at cost 71,125 (87,525 - 2023) shares		(1,147	)		(1,157	)
Total shareholders' equity		24,861			24,494

Total Liabilities and Shareholders' Equity	$	36,354		$	36,587

See notes to condensed consolidated financial statements

- 3 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share data)

(Unaudited)

	*Three Months Ended*						*Six Months Ended*
	*June 30,*						*June 30,*
	*2024*			*2023*			*2024*			*2023*

Revenue	$	12,273		$	10,649		$	22,719		$	19,709

Costs of goods sold, inclusive of depreciation and amortization		9,210			9,092			17,921			17,168
Gross profit		3,063			1,557			4,798			2,541

Operating expenses
Selling, general and administrative		2,397			3,269			4,415			5,444
Operating income (loss)		666			(1,712	)		383			(2,903	)

Other expense
Interest & other expense, net		98			89			181			142
Total other expense		98			89			181			142

Income (loss) from continuing operations before income taxes		568			(1,801	)		202			(3,045	)
Income taxes		-			1,479			-			1,063
Income (loss) from continuing operations, net of tax		568			(3,280	)		202			(4,108	)

Loss from discontinued operation before income taxes		(12	)		(6,220	)		(29	)		(6,940	)
Income taxes		-			-			-			-
Loss from discontinued operation, net of tax (Note 2)		(12	)		(6,220	)		(29	)		(6,940	)

Net income (loss)	$	556		$	(9,500	)	$	173		$	(11,048	)

Basic earnings (loss) per share:
Continuing operations	$	0.23		$	(1.33	)	$	0.08		$	(1.67	)
Discontinued operation		-			(2.53	)		(0.01	)		(2.82	)
Basic earnings (loss) per share	$	0.23		$	(3.86	)	$	0.07		$	(4.49	)

Diluted earnings (loss) per share:
Continuing operations	$	0.22		$	(1.33	)	$	0.08		$	(1.67	)
Discontinued operation		-			(2.53	)		(0.01	)		(2.82	)
Diluted earnings (loss) per share	$	0.22		$	(3.86	)	$	0.07		$	(4.49	)

See notes to condensed consolidated financial statements

- 4 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)

	*Three Months Ended*					*Six Months Ended*
	*June 30,*					*June 30,*
	*2024*		*2023*			*2024*		*2023*

Net Income (Loss)	$	556	$	(9,500	)	$	173	$	(11,048	)

Other comprehensive income items:
Actuarial gains		20		12			39		25
Income tax benefit on actuarial losses		-		-			-		-

Retirement benefits adjustments, net of income taxes		20		12			39		25

Total comprehensive income (loss)	$	576	$	(9,488	)	$	212	$	(11,023	)

See notes to condensed consolidated financial statements

- 5 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	*Six Months Ended*
	*June 30,*
	*2024*			*2023*
Cash flows related to operating activities:
Income (loss) from continuing operations	$	202		$	(4,108	)
Adjustments to reconcile income (loss) from continuing operations to net cash provided (used) by operating activities:
Depreciation and amortization		543			517
Stock based compensation		176			74
Allowance for credit losses		(18	)		(25	)
Inventory reserve		139			14
Warranty reserve		(93	)		(2	)
Deferred income taxes		-			1,072
Changes in assets and liabilities providing (using) cash:
Accounts receivable		1,377			(2,663	)
Inventories		(1,771	)		(826	)
Prepaid and other current assets		562			(520	)
Accounts payable		371			1,064
Accrued employee compensation and benefit costs		25			301
Post retirement obligations		37			66
Other accrued liabilities		(82	)		(105	)
Net cash provided (used) by operating activities from continuing operations		1,468			(5,141	)

Cash flows related to investing activities:
Purchase of property, plant and equipment		(647	)		(403	)
Net cash used by investing activities from continuing operations		(647	)		(403	)

Cash flows related to financing activities:
(Payments on) proceeds from line of credit		(630	)		3,697
Purchase of treasury shares		(21	)		-
Principal payments on finance lease obligations		-			(501	)
Net cash (used) provided by financing activities from continuing operations		(651	)		3,196

Discontinued Operation
Cash used by operating activities		(146	)		(568	)
Net cash used by operating activities from discontinued operation		(146	)		(568	)
Net increase (decrease) in cash and restricted cash		24			(2,916	)
Cash and restricted cash at beginning of period		245			3,812
Cash and restricted cash at end of period	$	269		$	896

See notes to condensed consolidated financial statements

- 6 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Operations and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Servotronics, Inc. (“Servotronics”) and its subsidiaries (“Company”) 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 segments that offered different products and services. Operations in ATG included the design, manufacturing and marketing of servo-control components and other advanced technology products, and the CPG operations included the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. During 2023, the Company’s Management made the strategic decision to sell certain assets of The Ontario Knife Company (“OKC”) and divest the CPG business segment. This divestiture represented a strategic shift, as the Company has realigned its corporate and management reporting structure to focus solely on the servo-control components and other advanced technology products, and now organizes its business in a single reportable segment. This segment structure reflects the financial information and reports used by management, specifically the Chief Executive Officer and Chief Operating Officer.

The consolidated financial statements currently include the accounts of Servotronics, OKC, 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 previously communicated, the Company executed an Asset Purchase Agreement (“APA”) with a third party to sell certain assets of OKC, which transaction closed on August 1, 2023. Accordingly, the sale of assets and results of operations for 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 income or net loss on the Condensed Consolidated Statements of Comprehensive Income (Loss), and the cash used in operating activities from the discontinued operation are included in the “Discontinued Operation” section of the Condensed Consolidated Statements of Cash Flows.

- 7 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 six-months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The consolidated financial statements should be read in conjunction with the 2023 annual report and the notes thereto.

The 2023 financial information included in the aforementioned Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations were reclassified to conform with the discontinued operation 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.

- 8 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Cash and Restricted Cash

The following table provides a reconciliation of cash and restricted cash to the amounts in the statement of cash flows:

	*June 30,*		*December 31,*
(in thousands)	*2024*		*2023*
Cash	$	119	$	95
Restricted cash		150		150
Total cash and restricted cash	$	269	$	245

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 June 30, 2024 and December 31, 2023 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 $103,000 as of June 30, 2024 and $121,000 as of December 31, 2023, respectively. The Company does not accrue interest on past due receivables.

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. 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 revenue, principally representing repairs, is recognized at the time of shipment of goods.

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.

- 9 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Performance obligations are satisfied as of a point in time. Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract. As a significant portion of the Company’s revenue are recognized at the time of shipment, transfer of title and customer acceptance, there is no significant judgment applied to determine the timing of the satisfaction of performance obligations or transaction price. Shipping and handling activities that occur after the customer obtains control of the promised goods are considered fulfillment activities.

The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment. The Company generally receives payment for these contracts within the payment terms negotiated and agreed upon by each customer contract.

Warranty and repair obligations are assessed on all returns. Revenue is not recorded on any warranty returns. The Company warrants its products against design, materials and workmanship based on an average of twenty-seven months. The Company determines warranty reserves needed based on actual average costs of warranty units shipped and current facts and circumstances. As of June 30, 2024, and December 31, 2023 under the guidance of ASC 460, the Company has recorded a warranty reserve of approximately $449,000 and $542,000, respectively. Revenue is recognized on repair returns, covered under a customer contract, at the contractual price upon shipment to the customer.

The Company disaggregates revenue from contracts with customers into geographic regions. The Company determined that disaggregating revenue into this category achieves the objective to portray how the nature, timing, and uncertainty of revenue from cash flows are affected by different regions. Disaggregation of revenue by geographic region are provided below:

	*Three Months Ended*				*Six Months Ended*
(in thousands)	*June 30, 2024*		*June 30, 2023*		*June 30, 2024*		*June 30, 2023*
Domestic	$	9,065	$	7,589	$	16,851	$	14,598
International		3,208		3,060		5,868		5,111
Total Revenue	$	12,273	$	10,649	$	22,719	$	19,709

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. Inventory reserves consist of obsolete and/or slow-moving items based on inventory levels in excess of planned sales activity. These reserves are applied to the gross value of the inventory and are approximately $766,000 and $627,000 as of June 30, 2024 and December 31, 2023, 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.

- 10 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 (years)			5 - 40
Machinery and equipment (years)			5 - 20
Tooling (years)			3 - 5

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 uncertain tax positions and income tax matters in income tax expense. The Company did not have any accrued interest or penalties included in its Condensed Consolidated Balance Sheets at June 30, 2024 or December 31, 2023, and did not recognize any interest and/or penalties in its Condensed Consolidated Statements of Operations during the three- and six-month periods ended June 30, 2024 and 2023. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of June 30, 2024 and December 31, 2023. The 2020 through 2023 federal and 2019 through 2023 state tax returns remain subject to examination by the respective taxing authorities.

Supplemental Cash Flow Information

Income taxes paid amounted to approximately $0 and $2,000 for the six-month periods ended June 30, 2024 and 2023, respectively. Interest paid during the six-month periods ended June 30, 2024 and 2023 was approximately $86,000 and $46,000 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. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

- 11 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s strategic decision to sell certain assets of OKC in 2023 resulted in the classification of a discontinued operation and triggered an impairment of OKC’s real property in accordance with ASC 360-10-45-9 Impairment or Disposal of Long-Lived Assets. Refer to Note 2, “Discontinued Operation and Assets and Liabilities Related to Discontinued Operation”, for further discussion. No additional impairment of long-lived assets exists as of June 30, 2024, which primarily includes the Company’s tangible real (land and building) and personal (machinery & equipment) properties.

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.

Reclassifications

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

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

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.

There have been no additional 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, 2023, that are of significance, or potential significance, to the Company.

- 12 -

Table of Contents

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company’s decision to sell certain assets and wind down the operations of OKC met the “held for sale” definition under ASC 205-20-45-9 Discontinued Operations, and represented a strategic shift that had a significant impact on the Company’s overall operations and financial results. Accordingly, the assets and liabilities of OKC are reflected as “Assets and Liabilities related to Discontinued Operation” in the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023. In addition, OKC’s operating loss, divestiture costs, and impairment charges on long-lived assets were reclassified to “Loss from Discontinued Operation, net of tax” in the Condensed Consolidated Statements of Operations for the three- and six-month periods ended June 30, 2024 and 2023 (as reclassified).

Under the terms of the Asset Purchase Agreement, the Company sold inventory, machinery & equipment and intellectual property (patents & trademarks/tradenames) to a third party on August 1, 2023. As a direct result of Management’s decision to sell OKC’s assets, divest the operations, and exit the CPG business segment, the Company incurred impairment charges on its long-lived asset (building) in 2023 based on independent, third-party appraisals (less estimated costs to sell). No impairment charges were incurred for the three- and six-month periods ended June 30, 2024.

Operating loss from discontinued operation was approximately $32,000 and $57,000 for the three- and six-month periods ended June 30, 2024, respectively, and resulted primarily from employee compensation and severance costs (compared to $770,000 and $1,490,000 for the three- and six-month period ended June 30, 2023, respectively, as reclassified). Divestiture and impairment cost changes resulted in income of approximately $20,000 and $28,000 for the three- and six-month periods ended June 30, 2024 (compared to divestiture and impairment cost estimates of $2,227,000 for each of the three- and six-month periods ended June 30, 2023, respectively). The loss on the sale of assets was $0 for the three- and six-month periods ended June 30, 2024, respectively (compared to $3,223,000 for each of the three- and six-month periods ended June 30, 2023, respectively, as reclassified). Therefore, the total Loss from Discontinued Operation, net of tax, is approximately $12,000 and $29,000 for the three- and six-month periods ended June 30, 2024, respectively (compared to a Loss of $6,220,000 and $6,940,000 for the three- and six-month periods ended June 30, 2023, respectively, as reclassified).

- 13 -

Table of Contents

SEC Form 10-Q filed by Servotronics Inc.