EDGAR 10-K Filing

Company CIK: 89140
Filing Year: 2022
Filename: 89140_10-K_2022_0001410578-22-000760.json

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ITEM 1. BUSINESS
Item 1.Business
General
Servotronics, Inc. and its subsidiaries (collectively the “Registrant” or the “Company”) design, manufacture and market advanced technology products consisting primarily of control components and consumer products consisting of knives and various types of cutlery and other edged products. The Company operates through two primary segments: the Advanced Technology Group (ATG) and the Consumer Products Group (CPG).
The Company was incorporated in New York in 1959. In 1972, the Company was merged into a wholly-owned subsidiary organized under the laws of the State of Delaware, thereby changing the Company’s state of incorporation from New York to Delaware.
The Company’s shares currently trade on the New York Stock Exchange (NYSE American) under the symbol SVT.
Products
Advanced Technology Products (ATG)
The Company designs, manufactures and markets a variety of servo-control components which convert an electrical current into a mechanical force or movement and other related products. The principal servo-control components produced include torque motors, electromagnetic actuators, hydraulic valves, pneumatic valves and similar devices, all of which perform the same general function. These are sold principally to the commercial aerospace, aircraft and government related industries, as well as medical and industrial markets.
To fill most of its orders for components, the Company must either modify a standard model or design a new product in order to satisfy the customer’s particular requirements. The Company also produces unique products based on specifications provided by its customers. The Company produces under long-term contracts and other types of orders.
The Company may from time to time produce metallic seals of various cross-sectional configurations. These seals fit between two surfaces, usually metal, to produce a more secure and leak-proof joint. The Company manufactures these seals to close tolerances from standard and special alloy steels. Ductile coatings are often applied to the seals in order to increase their effectiveness.
The Company has also produced other products of its own and/or of a given design to meet customers’ requirements.
Consumer Products (CPG)
The Company designs, manufactures and sells a variety of edged products, tools and specialty consumer products for domestic and international distribution. These products include a wide range of cutlery items such as steak, carving, bread, butcher and paring knives for household use and for use in restaurants, institutions and private industry, as well as equipment and gear including fixed and folding knives for hunting, fishing and camping. The Company also sells knives and tools to the U.S. Government, related agencies, and allied foreign governments. These products include machetes, bayonets, axes, strap cutters, and other tools that are designed primarily for military and rescue/first-responder use, but are viable in commercial markets as well. The Company also produces and markets other edged products such as various specialty tools, putty knives, linoleum sheet cutters, field knives and medical items including scalpels and micro-spatulas. The Company manufactures its products from stainless and high carbon steels, titanium, or synthetic materials in numerous styles, designs, models and sizes. Substantially all of the Company’s commercial related products are intended for the moderate to premium priced markets. The Company also provides plastic fabrication, metal fabrication and other engineering, design, and OEM/white-label manufacturing services to regional customers. This includes the production of a wide range of machined, engineered, and/or molded consumer and industrial products and components.
Sales, Marketing and Distribution
Advanced Technology Products
The Company’s ATG products are marketed throughout the United States and in select foreign markets. Products are primarily non-seasonal in nature. These products are sold to commercial aviation manufacturers, government prime contractors, government subcontractors, and end-users. Sales are made primarily by the Company’s professional staff.
The Company’s prime contracts and subcontracts with United States Government subcontractors and commercial manufacturers are subject to termination at the convenience of the customer. In the event of such termination, the Company is ordinarily entitled to receive payment for its costs and profits on work done prior to termination. Since the inception of the Company’s business, less than 1% of its contracts have been terminated for convenience. The Company’s sales of advanced technology products are composed primarily of a small group of customers. The Company has a significant concentration of business with two major customers: Customer A and Customer B. Sales to Customer A accounted for 33.5% of consolidated sales in 2021 and 26.7% of consolidated sales in 2020. Sales to Customer B accounted for 19.1% of consolidated sales in 2021 and 22.3% of consolidated sales in 2020. In 2021 and 2020 we had a concentration of sales to Customer A and Customer B representing approximately 52.6% and 49.0% of our consolidated sales, respectively.
Two commercial aircraft accidents in 2018 and 2019 led to the grounding by the Federal Aviation Administration and other regulators of the Boeing 737 MAX aircraft. A significant portion of the units shipped to Customer B support Boeing 737 MAX aircraft production as shown in the table below:
737 MAX shipments as a % of:
Year
Customer B shipments
ATG Shipments
%
%
%
%
%
%
There was a significant decline of 30.0% in shipments to Customer B for the Boeing 737 MAX and a 38% decline in total shipments to Customer B in 2020 as compared to 2019. There was an additional decline of 42% in shipments to Customer B for the Boeing 737 MAX and a 38% decline in total shipments to Customer B in 2021 as compared to the same period in 2020.
The ATG revenue decreased approximately $9,105,000 in 2021 as compared to 2020. Customer A revenue increased approximately $258,000 or less than 2% in 2021 as compared to 2020. Customer B revenue decreased approximately $3,334,000 or (30)% in 2021 as compared to 2020. Customer B revenue drop was 37% of total ATG drop in revenue in 2021 as compared to 2020.
The loss of either of these customers would have a significant impact on our revenue and earnings. The reduction in business with Customer B has significantly reduced our sales and earnings. See Note 1, Business Description and Summary of Significant Accounting Policies - Concentration of Credit Risks, of the accompanying consolidated financial statements for information related to sales concentrations.
Consumer Products
The Company’s consumer products are marketed throughout the United States and in select foreign markets. Consumer sales are seasonal. Sales are direct to consumer, through national and international distributors, and through retailers such as big box, hardware, supermarket, variety, department, discount, gift, drug, outdoors and sporting stores. The Company’s Consumer Products Group (CPG) also sells its knives and tools (principally machetes, bayonets, survival knives and kitchen knives) to various branches of the United States Government. Additionally, the Company provides OEM and white label product design and manufacturing services to a regional customer base across a wide range of consumer and commercial industries. No single customer of the CPG represented more than 10% of the Company’s consolidated revenues in 2021 or 2020. The Company sells its products and manufacturing services through its own sales resources, independent manufacturers’ representatives and electronic commerce.
Business Segments
Business segment information is presented in Note 10, Business Segments, of the accompanying consolidated financial statements.
Intellectual Properties
The Company has rights under certain copyrights, trademarks, patents, and registered domain names. In the view of management, the Company’s competitive position is not dependent on patent protection.
Research Activities
The amount spent by the Company in research and development activities during its 2021 and 2020 fiscal years was not significant, but the Company does take advantage of tax credits for research and development activities when available. Such activities are expensed as incurred.
Environmental Compliance
The cost of compliance with current environmental laws has not been material and the Company does not anticipate that it will be in the future. The Company does not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on the Company’s business, nor on its results of operations, capital expenditures or financial position.
Manufacturing
The Company manufactures its ATG products in Elma, New York and Franklinville, New York and its CPG products in Franklinville, New York.
Raw Materials and Other Supplies
The Company purchases raw materials and certain components for its products from outside vendors. The Company is generally not dependent upon a single source of supply for any raw material or component used in its operations. We believe the loss of any one supplier, although potentially disruptive in the short-term, would not materially affect our operations in the long-term. As a result of the COVID-19 pandemic and resulting economic and supply chain disruptions, the Company continues to face upward pricing pressure on certain parts and raw materials.
Competition
Although no reliable industry statistics are available to enable the Company to determine accurately its relative competitive position with respect to any of its products, the Company believes that it is a significant factor with respect to certain of its servo-control components within its competitive market. The Company’s share of the overall cutlery market is not significant.
The Company has many different competitors with respect to servo-control components because of the nature of that business and the fact that these products also face competition from other types of control components which, at times, can accomplish the desired result. Many of these competitors are substantially larger and have greater resources than the Company.
The Company encounters active competition with respect to its consumer products from numerous companies, many of which are larger in terms of manufacturing capacity, financial resources and marketing organization. Its principal competitors vary depending upon the customer and/or the products involved. The Company believes that it competes primarily with more than 20 companies with respect to its consumer products, in addition to foreign imports. To the Company’s knowledge, its principal competitors with regard to cutlery include Corelle Brands Holdings, Inc., Benchmade Knife Company, Inc., Tramontina, Inc., Dexter-Russell Inc., W. R. Case & Sons Cutlery Company, Lifetime Brands, Inc., Cutco Corporation and Gerber. The Company also competes with other regional manufacturing companies for its molded plastic and metal and plastic fabrication services. To the Company’s knowledge, its principal competitors with regard to manufacturing services include PM Plastics, Monarch Plastics and Ontario Plastics.
The Company markets most of its products throughout the United States and to a lesser extent in select foreign markets. The Company believes that it competes in marketing its servo-control products primarily on the basis of operating performance, adherence to rigid specifications, quality, price and delivery and its consumer products primarily on the basis of price, quality and delivery.
Employees
In order to continue supporting our customers, Servotronics remains committed to attracting and retaining top talent. We strive to make Servotronics a diverse, inclusive and safe workplace for all.
The Company, at December 31, 2021, had 272 employees of which 268 are full time and 4 part time employees at two locations in New York. Approximately 82% of its employees and contractors are engaged in production, engineering, inspection, packaging or shipping activities. The balance is engaged in executive, administrative, clerical or sales capacities. None are subject to a collective bargaining agreement.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (the SEC). The SEC maintains a website at www.sec.gov on which you may access our SEC filings. In addition, we make available free of charge at www.servotronics.com/investor-relations copies of materials we file with, or furnish to, the SEC as soon as reasonably practical after we electronically file or furnish these reports, as well as other important information that we disclose from time to time. Information contained on our website, or that can be accessed through our website, does not constitute a part of this Annual Report on Form 10-K. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website.
Our corporate headquarters are located at 1110 Maple Street, Elma, New York 14059 and the telephone number of this location is (716) 655-5990.

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ITEM 1A. RISK FACTORS
Item 1A.Risk Factors
The Company is a smaller reporting company by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2.Properties
The Company owns real property as set forth in the following table with no related encumbrances:
Number of
Principal
buildings and
Approx.
product
type of
floor area
Location
Description
manufactured
construction
(sq. feet)
Elma, New York
Corporate Headquarters and Manufacturing Facility
Advanced technology products
1-concrete block/ steel
83,000
Franklinville, New York
Office and Manufacturing Facility
Advanced technology products Cutlery products
1-tile/wood 1-concrete/metal
137,000
The Company believes that the properties are suitable and adequate to meet the Company’s current and foreseeable production needs. The properties are appropriately covered by insurance consistent with the advice of the Company’s insurance consultant.

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ITEM 3. LEGAL PROCEEDINGS
Item 3.Legal Proceedings
See Note 8, Litigation, for information regarding legal actions. There are no other legal proceedings currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to have a material adverse effect on the business or earnings of the Company.
The following matters were settled during the fourth quarter of 2021:
On November 30, 2021, the Company entered into a Settlement Agreement and Release (the “Settlement Agreement”) by and among the Company, Aero Metal Products, Inc. (“AMP”), a wholly owned subsidiary of the Company, and Aero, Inc. (“Aero”) to settle all claims and counterclaims related to a lawsuit filed by Aero against the Company and AMP, on July 19, 2013 in the Supreme Court of the State of New York, County of Erie (the “Lawsuit”). Pursuant to the Settlement Agreement, the Company agreed to pay Aero $1,800,000 in cash and the parties have agreed to dismiss the Lawsuit, with prejudice. In addition, the Company and Aero each agreed to release the other party from certain claims, including those arising out of the Lawsuit.
The sole shareholder of Aero, Inc. is the wife of a former executive officer, who is the brother of a member of the Company’s Board of Directors. The Settlement Agreement was unanimously approved by the Company’s Board of Directors. The Settlement Agreement does not constitute an admission of liability, culpability, negligence, or wrongdoing on the part of the Company or AMP. The Company believes the settlement is in the best interests of the Company and its shareholders. The settlement reflects the Company’s desire to forgo further litigation uncertainty, risk, expense, and potential damages, and to eliminate further distraction from business focus associated with continuing lengthy and complex litigation and possible appeals.
On November 3, 2021, the Company entered into a Settlement Agreement and Release (the “November 3, 2021 Settlement Agreement”) to settle all claims relative to a dispute for work performed by an independent contractor for the Company’s wholly-owned subsidiary, The Ontario Knife Company. The Summons and Complaint had been filed on March 3, 2016 in New York State Supreme Court, Erie County. The Plaintiff alleged that the Company had used the trade secret of the Plaintiff. Alleged damages was in the amount
of $750,000. The Company denied all of the Plaintiff’s allegations. Substantive settlement negotiations were conducted by the parties under the Court’s guidance and supervision, which resulted in a settlement wherein the Company agreed to pay the sum of $90,000 in cash to the Plaintiff in return for the execution of a General Release to the Company, releasing the Company from any and all claims. The November 3, 2021 Settlement Agreement also acknowledged that the agreement reached thereunder was not an admission of liability on the part of the Company.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4.Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a)
Market Information:
The Company’s common stock is listed on the NYSE American Stock exchange and trades under the symbol SVT.
(b)
Approximate Number of Holders of Common Stock
Title of class
Approximate number of record holders (as of February 15, 2022)
Common Stock, $.20 par value per share
(c)
Dividends on Common Stock
The Company has not paid any cash dividends in the two-year period ended December 31, 2021. The Company has no plans to pay cash dividends as it plans to retain all cash from operations as a source of capital to finance working capital and growth in the business.
(d)
Company Purchases of Company’s Equity Securities
Total Number of
Weighted
Shares
Average
Purchased as
Maximum Number of
Total Number
Price $Paid
Part of Publicly
Shares that may yet be
of Shares
Per
Announced Plans
Purchased under the Plans
2021 Periods
Withheld
Share
or Programs (1)
or Programs (1)
January - March
9,920
(2)
$
8.26
-
89,385
April - June
-
-
-
89,385
July - September
-
-
-
89,385
October - December
-
-
-
89,385
Total
9,920
$
8.26
-
89,385
(1) 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 December 31, 2021, the Company has purchased 360,615 shares and there remain 89,385 shares available to purchase under this program. There were no shares purchased by the Company in 2021.
(2) Includes 9,920 shares withheld by the Company in January 2021 to satisfy statutory minimum withholding tax requirements for those participants who elected this option as permitted under the Company’s 2012 Long-Term Incentive Plan.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6.Selected Financial Data
The Company is a smaller reporting company by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and the notes related thereto. As noted under the heading “Forward-Looking and Cautionary Statements” of this Annual Report on Form 10-K, this discussion and analysis contains forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many known and unknown risks and uncertainties described elsewhere is this report.
All comparisons included within this Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, refer to results for the year ended December 31, 2021 compared to the year ended December 31, 2020, unless stated otherwise. Additionally, the information provided is expected to better allow investors to view the registrant from management’s perspective including using quarterly data supporting management’s discussion. In 2021, we were focused on execution, while managing the continued challenges caused by the COVID-19 pandemic.
Business Overview
The aviation and aerospace industries as well as markets for the Company’s consumer products continually face evolving challenges on a global basis. The operations of the Company can be affected by the trends of the economy, including interest rates, income tax laws, government regulation, legislation, and other factors. In addition, uncertainties in today’s global economy, competition from expanding manufacturing capabilities and technical sophistication of low-cost developing countries and emerging markets, currency policies in relation to the U.S. dollar of some major foreign exporting countries, the effect of terrorism, difficulty in predicting defense and other government appropriations, the vitality of the commercial aviation industry and its ability to purchase new aircraft, the willingness and ability of the Company’s customers to fund long-term purchase programs, volatile market demand and the continued market acceptance of the Company’s advanced technology and cutlery products make it difficult to predict the impact on future financial results.
Both the ATG and CPG markets are sensitive to domestic and foreign economic conditions and policies, which may create volatility in operating results from period to period. For example, the airline industry is sensitive to fuel price increases and economic conditions. These factors directly impact the demand for aircraft production as well as the amount of repair and overhaul required on in-service aircraft.
The Company’s suppliers are also subject to all the pressures and volatility being generated by the current global economic conditions. Any interruption of the Company’s continuous flow of material and product parts that are required for the manufacture of the Company’s products could adversely impact the Company’s ability to meet the Company’s customers’ delivery requirements. Consistent with the evolving requirements of the aerospace industry, companies are increasingly being requested to operate under long-term agreements with their customers on the basis of fixed prices, targeted year to year price reductions and/or year to year price adjustments predicated on mutually agreed indices and/or a combination of some or all of the above described pricing arrangements and/or otherwise. Therefore, productivity improvements and cost containment strategies are continuously sought within the Company’s concept of continuous improvement. The Company’s products are labor intensive and as such productivity improvements are expected to have positive effects on the Company’s operating results. However, increased costs for raw material, purchased parts and/or labor will have the reverse effect.
If any adverse economic events reduce the number of Airliners and/or Aircraft being produced by the Company’s relevant prime contractors, the negative effects of that reduction will in turn flow down through the supply chain. Also, certain major manufacturers have successfully imposed extended payment terms to their suppliers. At times, these extended payment terms are not available to the Company when purchasing raw material such as aluminum, magnetic material, steel and/or other product support items and services. If the Company’s customers delay their payments until after the extended due date or fail to pay, it could adversely impact the Company’s operating results.
Maximizing the Company’s operations and resources requires continued dedicated performances from the Company’s key and other personnel. In the Company’s markets and business arenas there is substantial competition for the services of the highest performing individuals. Competitors, customers and other companies who may have interest in the Company’s most experienced and educated/highly trained personnel (i.e., managerial, engineering and accounting/administrative) are a continuing consequence of the Company’s history of successful operational performance. Any unplanned replacement of such personnel may require the hiring of new personnel on an expedited basis (provided they are available) and may temporarily interrupt the Company’s operations and efforts for continuous improvement.
Management Discussion
During the years ended December 31, 2021 and 2020, approximately 78% and 82%, respectively, of the Company’s consolidated revenues were derived from the ATG sale of product to a small base of customers. During the years ended December 31, 2021 and 2020, approximately 22% and 18% of the Company’s consolidated revenues were derived from the CPG sale of product to a large base of retail customers. There was a decrease in revenue in 2021 from 2020 of approximately $9,105,000 at the ATG and approximately $181,000 at the CPG.
The Company’s commercial business is affected by such factors as uncertainties in today’s global economy, global competition, the vitality and ability of the commercial aviation industry to purchase new aircraft, the effects and threats of terrorism, market demand and acceptance both for the Company’s products and its customers’ products which incorporate Company made components. The ATG engages its business development efforts in its primary markets and is broadening its activities to include new domestic and foreign markets that are consistent with its core competencies. We believe our business remains particularly well positioned in the strong commercial aircraft market driven by the replacement of older aircraft with more fuel efficient alternatives and the recovery of demand for air travel. Although the ATG backlog continues to be strong, actual scheduled shipments may be delayed/changed as a function of the Company’s customers’ final delivery determinations based on changes in the global economy and other factors.
See also Note 10, Business Segments, of the accompanying consolidated financial statements for information concerning business segment operating results.
Results of Operations
The following table compares the Company’s consolidated statements of income data for the years ended December 31, 2021 and 2020 ($000’s omitted).
Twelve Months Ended December 31,
2021 vs 2020
Dollar
% Favorable/
Dollars
% of Sales
Dollars
% of Sales
Change
(Unfavorable)
Revenue:
Advanced Technology
$
31,677
78.1
%
$
40,782
81.8
%
$
(9,105)
(22.3)
%
Consumer Products
8,881
21.9
%
9,062
18.2
%
(181)
(2.0)
%
40,558
100.0
%
49,844
100.0
%
(9,286)
(18.6)
%
Cost of goods sold, inclusive of depreciation and amortization
(34,570)
85.2
%
(41,604)
83.5
%
7,034
16.9
%
Gross margin
5,988
14.8
%
8,240
16.5
%
(2,252)
(27.3)
%
Gross margin %
14.8
%
-
16.5
%
-
-
-
Operating expenses:
Selling, general and administrative
(9,423)
23.2
%
(7,998)
16.0
%
(1,425)
(17.8)
%
Legal settlement awards
(1,890)
4.7
%
-
-
(1,890)
-
Total operating expenses
(11,313)
27.9
%
(7,998)
16.00
(3,315)
(17.8)
%
Total costs and expenses
(45,883)
113.1
%
(49,602)
99.5
%
3,719
7.5
%
Operating (loss)/income
(5,325)
(13.1)
%
0.5
%
(5,567)
(2,300.4)
%
Other income/(expense):
Other income: employee retention credit (ERC)
5,622
13.9
%
-
-
5,622
-
Other income: PPP loan forgiveness
4,000
9.9
%
-
-
4,000
-
Interest expense
(187)
(0.5)
%
(180)
(0.4)
%
(7)
(3.9)
%
Loss on sale of equipment
(98)
(0.2)
%
-
-
(98)
-
Total other income/(expense)
9,337
23.0
%
(180)
(0.4)
%
9,517
5,287.2
%
Income before income tax provision
4,012
9.9
%
0.1
%
3,950
6,371.0
%
Income tax (benefit)/provision
(43)
(0.1)
%
(38)
(0.1)
%
(5)
13.2
%
Net income
$
4,055
10.0
%
$
0.2
%
$
3,955
3,955.0
%
Revenue and Gross Margin
Servotronics, Inc.
Servotronics, Inc.
2021 Three months ended
2020 Three months ended
($000's omitted)
March 31,
June 30,
September 30,
December 31,
Total Year
March 31,
June 30,
September 30,
December 31,
Total Year
Revenues
$
9,060
$
10,028
$
10,915
$
10,555
$
40,558
$
15,448
$
13,504
$
10,297
$
10,595
$
49,844
Cost of goods sold
(8,067)
(8,156)
(9,143)
(9,204)
(34,570)
(10,736)
(10,484)
(10,462)
(9,922)
(41,604)
Gross margin
1,872
1,772
1,351
5,988
4,712
3,020
(165)
8,240
Gross margin %
11.0
%
18.7
%
16.2
%
12.8
%
14.8
%
30.5
%
22.4
%
(1.6)
%
6.4
%
16.5
%
ATG
ATG
2021 Three months ended
2020 Three months ended
March 31,
June 30,
September 30,
December 31,
Total Year
March 31,
June 30,
September 30,
December 31,
Total Year
Revenues
$
7,223
$
7,823
$
8,449
$
8,182
$
31,677
$
13,814
$
11,230
$
8,184
$
7,554
$
40,782
Cost of goods sold
(6,210)
(6,242)
(6,762)
(6,715)
(25,929)
(9,366)
(8,494)
(8,635)
(6,945)
(33,440)
Gross margin
1,013
1,581
1,687
1,467
5,748
4,448
2,736
(451)
7,342
Gross margin %
14.0
%
20.2
%
20.0
%
17.9
%
18.1
%
32.2
%
24.4
%
(5.5)
%
8.1
%
18.0
%
CPG
CPG
2021 Three months ended
2020 Three months ended
March 31,
June 30,
September 30,
December 31,
Total Year
March 31,
June 30,
September 30,
December 31,
Total Year
Revenues
$
1,837
$
2,205
$
2,466
$
2,373
$
8,881
$
1,634
$
2,274
$
2,113
$
3,041
$
9,062
Cost of goods sold
(1,857)
(1,914)
(2,381)
(2,489)
(8,641)
(1,370)
(1,990)
(1,827)
(2,977)
(8,164)
Gross margin
(20)
(116)
Gross margin %
(1.1)
%
13.2
%
3.4
%
(4.9)
%
2.7
%
16.2
%
12.4
%
13.5
%
2.1
%
9.9
%
Revenue
The Company’s consolidated revenues from operations decreased approximately $9,286,000 or (18.6)% for the twelve month period ended December 31, 2021 when compared to the same period in 2020. This is due to a decrease at both the ATG of approximately $9,105,000 or (22.3)% and at the CPG of approximately $181,000 or (2.0)%.
The consolidated decrease for the twelve month period ended December 31, 2021 when compared to the same twelve month period ended December 31, 2020 is attributable primarily to a decrease in units shipped at the ATG of approximately $10,189,000 offset by an increase in price/mix of units shipped of approximately $1,084,000. Throughout 2021 the ATG experienced a gradual increase in revenues, quarter over quarter sequentially, with a slight drop in the last three months ended December 31, 2021. Despite the slight drop in the last three months of 2021, the ATG revenues increased approximately 8.3% over the same three month period in 2020.
Additionally, there was a decrease in shipments at the CPG of approximately $410,000 offset by an increase in price/mix of units shipped of approximately $229,000. The CPG experienced an increase in revenues of approximately 8.1% for the first nine months of 2021 as compared to the same nine month period in 2020, with an approximate 22.0% decrease in revenues during the remaining three month period ending December 31, 2021, primarily attributable to the push-out of revenue due to contractual terms.
Gross Margin
The Company’s consolidated gross margins from operations decreased approximately $2,252,000 or (27.3)% for the twelve month period ended December 31, 2021 when compared to the same period in 2020.
The ATG gross margin decreased in the twelve month period due to an increase in the costs per units shipped of approximately $1,840,000 partially offset by the price increases of those units shipped of approximately $1,084,000, as mentioned above. The gross margin also decreased approximately $2,534,000 due to the decrease in the number of units shipped at the ATG. The gross margin improved by approximately $1,696,000 due to the mix of the units produced and sold in the twelve month period ended December 31, 2021 as compared to the same time period in 2020.
Additionally, the CPG gross margin decreased in the twelve month period due to an increase in the costs per units shipped of approximately $1,627,000 partially offset by the price increases of those units shipped of approximately $229,000, as mentioned above. The gross margin also decreased approximately $67,000 due to the decrease in the number of units shipped at the CPG. The gross margin improved by approximately $807,000 due to the mix of the units produced and sold in the twelve month period ended December 31, 2021 as compared to the same time period in 2020.
Since mid-2020, both Segments have experienced the challenge of fully utilizing their production resources, increasing the cost per unit produced. Additionally, the increased costs of raw materials and shipping costs associated with the production of our products have increased the costs per unit. The Segments have been closely monitoring all other purchases.
As the ATG revenue volume increases it is expected that the utilization of the production resources will improve and improve gross margin percentages similar to the first half of 2020. Since the ATG has production at both the Elma and Franklinville facilities, we also expect to see improvement in the CPG gross margin percentages.
Selling, General and Administrative Expenses and Operating Income
Servotronics, Inc.
Servotronics, Inc.
($000's omitted)
2021 Three months ended
2020 Three months ended
March 31,
June 30,
September 30,
December 31,
Total Year
March 31,
June 30,
September 30,
December 31,
Total Year
SG&A:
Legal settlement awards
$
-
$
-
$
(1,890)
$
-
$
(1,890)
$
-
$
-
$
-
$
-
$
-
Selling, general & admin
(1,973)
(2,209)
(2,721)
(2,520)
(9,423)
(2,268)
(1,748)
(2,096)
(1,886)
(7,998)
Total SG&A
$
(1,973)
$
(2,209)
$
(4,611)
$
(2,520)
$
(11,313)
$
(2,268)
$
(1,748)
$
(2,096)
$
(1,886)
$
(7,998)
% SG&A to Revenues
21.8
%
22.0
%
42.2
%
23.9
%
27.9
%
14.7
%
12.9
%
20.4
%
17.8
%
16.0
%
Operating (Loss)/Income
$
(980)
$
(337)
$
(2,839)
$
(1,169)
$
(5,325)
$
2,444
$
1,272
$
(2,261)
$
(1,213)
$
Operating (Loss)/Inc %
(10.8)
%
(3.4)
%
(26.0)
%
(11.1)
%
(13.1)
%
15.8
%
9.4
%
(22.0)
%
(11.4)
%
0.5
%
ATG
ATG
($000's omitted)
2021 Three months ended
2020 Three months ended
March 31,
June 30,
September 30,
December 31,
Total Year
March 31,
June 30,
September 30,
December 31,
Total Year
SG&A:
Legal settlement awards
$
-
$
-
$
(1,800)
$
-
$
(1,800)
$
-
$
-
$
-
$
-
$
-
Selling, general & admin
(1,585)
(1,761)
(2,240)
(2,075)
(7,661)
(1,743)
(1,402)
(1,712)
(1,388)
(6,245)
Total SG&A
$
(1,585)
$
(1,761)
$
(4,040)
$
(2,075)
$
(9,461)
$
(1,743)
$
(1,402)
$
(1,712)
$
(1,388)
$
(6,245)
% SG&A to Revenues
21.9
%
22.5
%
47.8
%
25.4
%
29.9
%
12.6
%
12.5
%
20.9
%
18.4
%
15.3
%
Operating (Loss)/Income
$
(572)
$
(180)
$
(2,353)
$
(608)
$
(3,713)
$
2,705
$
1,334
$
(2,163)
$
(779)
$
1,097
Operating (Loss)/Inc %
(7.9)
%
(2.3)
%
(27.8)
%
(7.4)
%
(11.7)
%
19.6
%
11.9
%
(26.4)
%
(10.3)
%
2.7
%
CPG
CPG
($000's omitted)
2021 Three months ended
2020 Three months ended
March 31,
June 30,
September 30,
December 31,
Total Year
March 31,
June 30,
September 30,
December 31,
Total Year
SG&A:
Legal settlement awards
$
-
$
-
$
(90)
$
-
$
(90)
$
-
$
-
$
-
$
-
$
-
Selling, general & admin
(388)
(448)
(481)
(445)
(1,762)
(525)
(346)
(384)
(498)
(1,753)
Total SG&A
$
(388)
$
(448)
$
(571)
$
(445)
$
(1,852)
$
(525)
$
(346)
$
(384)
$
(498)
$
(1,753)
% SG&A to Revenues
21.1
%
20.3
%
23.2
%
18.8
%
20.9
%
32.1
%
15.2
%
18.2
%
16.4
%
19.3
%
Operating (Loss)
$
(408)
$
(157)
$
(486)
$
(561)
$
(1,612)
$
(261)
$
(62)
$
(98)
$
(434)
$
(855)
Operating (Loss)/Inc %
(22.2)
%
(7.1)
%
(19.7)
%
(23.6)
%
(18.2)
%
(16)
%
(2.7)
%
(4.6)
%
(14.3)
%
(9.4)
%
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) increased approximately $3,315,000 or 41.4% for the twelve month period ended December 31, 2021 when compared to the same period in 2020. SG&A expenses at the ATG increased approximately $3,216,000 or 51.5%. The increase is due to a legal settlement of approximately $1,800,000, as previously disclosed; legal fees of approximately $1,508,000 and professional fees of approximately $598,000 offset by a decrease of employee wages and benefits of approximately $833,000. There was a net increase of all other ATG SG&A expenses of approximately $143,000 as compared to the same period in 2020. In addition, SG&A expenses at the CPG increased approximately $99,000 or 5.6%. The increase is due to a legal settlement of approximately $90,000, as previously disclosed and employee wages and benefits of approximately $138,000 offset by a decrease of assessed support from the ATG of approximately $103,000. There was a net decrease of approximately $26,000 of all other CPG SG&A expenses as compared to the same period in 2020.
In 2021, both Segments experienced an increase in SG&A as a percentage of revenues. Management expects the ATG SG&A percentage to revenue to drop significantly, when adjusted for nonrecurring legal settlement costs, legal fees and professional fees, in conjunction with the anticipated increase of revenue volume. The CPG SG&A percentage to revenue is not expected to improve significantly, except for adjusting for nonrecurring legal settlement costs.
Operating Losses
Losses from operations increased approximately $5,567,000 or (2300.4%) when comparing the twelve month period ended December 31, 2021 to the same period in 2020. Operating losses increased at both the ATG and CPG approximately $4,810,000 and $757,000, respectively, as compared to the twelve month period ended December 31, 2020. Operating losses for the three months ended December 31, 2021 at the ATG slightly improved by approximately $171,000 partially offset by additional operating losses at the CPG by approximately $127,000 as compared to the same time period in 2020.
The consolidated increase in operating losses is primarily the result in the decreases in revenue and increases in SG&A expenditures, as discussed above.
Other Income:
Servotronics, Inc.
Servotronics, Inc.
($000's omitted)
2021 Three months ended
2020 Three months ended
March 31,
June 30,
September 30,
December 31,
Total Year
March 31,
June 30,
September 30,
December 31,
Total Year
Other Income:
ERC
$
1,730
$
1,914
$
1,978
$
-
$
5,622
$
-
$
-
$
-
$
-
$
-
PPP loan forgiveness
-
-
4,000
-
4,000
-
-
-
-
-
Interest expense
(61)
(66)
(5)
(55)
(187)
(42)
(50)
(42)
(46)
(180)
(Loss)/gain sale of equip
-
-
-
(98)
(98)
-
-
-
-
-
Total other income
$
1,669
$
1,848
$
5,973
$
(153)
$
9,337
$
(42)
$
(50)
$
(42)
$
(46)
$
(180)
Income (loss) before income tax provision (benefits)
$
$
1,511
$
3,134
$
(1,322)
$
4,012
$
2,402
$
1,222
$
(2,303)
$
(1,259)
$
ATG
ATG
($000's omitted)
2021 Three months ended
2020 Three months ended
March 31,
June 30,
September 30,
December 31,
Total Year
March 31,
June 30,
September 30,
December 31,
Total Year
Other Income:
ERC
$
1,413
$
1,573
$
1,598
$
-
$
4,584
$
-
$
-
$
-
$
-
$
-
PPP loan forgiveness
-
-
4,000
-
4,000
-
-
-
-
-
Interest expense
(60)
(65)
(5)
(55)
(185)
(38)
(46)
(41)
(45)
(170)
(Loss)/gain sale of equip
-
-
-
(98)
(98)
-
-
-
-
-
Total other income
$
1,353
$
1,508
$
5,593
$
(153)
$
8,301
$
(38)
$
(46)
$
(41)
$
(45)
$
(170)
Income (loss) before income tax provision (benefits)
$
$
1,328
$
3,240
$
(761)
$
4,588
$
2,667
$
1,288
$
(2,204)
$
(824)
$
CPG
CPG
($000's omitted)
2021 Three months ended
2020 Three months ended
March 31,
June 30,
September 30,
December 31,
Total Year
March 31,
June 30,
September 30,
December 31,
Total Year
Other Income:
ERC
$
$
$
$
-
$
1,038
$
-
$
-
$
-
$
-
$
-
PPP loan forgiveness
-
-
-
-
-
-
-
-
-
-
Interest expense
(1)
(1)
-
-
(2)
(4)
(4)
(1)
(1)
(10)
(Loss)/gain sale of equip
-
-
-
-
-
-
-
-
-
-
Total other income
$
$
$
$
-
$
1,036
$
(4)
$
(4)
$
(1)
$
(1)
$
(10)
Income (loss) before income tax provision (benefits)
$
(92)
$
$
(106)
$
(561)
$
(576)
$
(265)
$
(66)
$
(99)
$
(435)
$
(865)
ERC and PPP loan forgiveness
As previously discussed, the Company evaluated its eligibility for the employee retention credit. It was determined that the Company qualified for the ERC for all quarters allowed under the Federal Government programs. As a result, the Company recognized approximately $5,622,000 on a consolidated basis, for the period ended December 31, 2021.
In addition, on September 24, 2021 the Small Business Administration notified the Company that the full amount of the PPP loan was forgiven. The amount of $4,000,000 was recorded in other income.
By participating in state and federal programs the ATG was able to avoid an involuntary reduction in workforce and maintain production for ontime delivery to our customers.
Interest Expense
Interest expense increased approximately $7,000 or 3.9% primarily due to the line of credit and equipment financing lease obligations at the ATG for the twelve month period ended December 31, 2021 compared to the same period in 2020. See also Note 4, Long-Term Debt, of the accompanying consolidated financial statements for information on long-term debt.
Income Taxes
The Company’s effective tax rate for operations was (1.1)% in 2021 and (61.3)% in 2020. The effective tax rate reflects federal and state income taxes, permanent non-deductible expenditures, non-taxable PPP loan foregiveness income, the deduction for foreign-derived intangible income (FDII), and the federal tax credit for research and development expenditures. The increase in the effective tax rate between 2020 and 2021 is a result of a decrease in the ratio of tax benefits to net income before taxes. See also Note 6, Income Taxes, of the accompanying consolidated financial statements for information concerning income taxes.
Net Income
Net income for the twelve month period ended December 31, 2021 increased approximately $3,955,000 or 3955.0% when compared to the twelve month period ended December 31, 2020. Net income at the ATG was higher by approximately $4,075,000 while the net loss at the CPG increased by approximately $120,000. The consolidated increase is primarily the result of the consolidated operating losses offset by the ERC and the PPP forgiveness, as discussed earlier.
Liquidity and Capital Resources:
Twelve months ended December 31,
($000's omitted)
CASH FLOW DATA:
Net Cash Flows from:
Operating Activities
$
4,591
$
Investing Activities
$
$
(729)
Financing Activities
$
(983)
$
3,809
YEAR-END FINANCIAL POSITION:
Working Capital
$
34,067
$
31,074
Indebtedness
$
5,026
$
9,928
CAPITAL EXPENDITURES (1):
$
$
(729)
(1) NET OF PROCEEDS FROM SALE OF EQUIPMENT AND EQUIPMAENT FINANCING
Operating Activities:
The Company generated approximately $4,591,000 in cash from operations during the twelve month period ended December 31, 2021 as compared to generating approximately $826,000 for the same period in 2020. At December 31, 2021, the Company had working capital of approximately $34,067,000 ($31,074,000 - December 2020) of which approximately $9,546,000 ($5,935,000 - December 2020) was comprised of cash.
The increase in working capital is primarily attributable to an increase in net income partially offset by adjustments to reconcile net income to cash generated of approximately $958,000. In addition, there was a decrease of inventory at the ATG of approximately $3,252,000. The Company continues to focus on inventory management in light of this period of uncertainty with respect to short and
long-term industry demand. The balances of all other operating accounts were a net increase to working capital of approximately $381,000.
The Company’s cash flow from operations and available line of credit capacity provide the Company with the financial resources needed to run the Company’s operations and reinvest in its business. The Company’s ability to maintain sufficient liquidity is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on the Company’s liquidity, its ability to obtain financing, and our operations in the future.
Investing Activities:
The Company generated approximately $3,000 in cash from investing activities during the twelve month period ended December 31, 2021 as compared to a usage of cash of approximately $729,000 during the same period in 2020. Cash was generated primarily through the sale of equipment. The sale of the equipment was due to the lower return on investment achieve than initially expected when purchased.
Financing Activities:
The Company’s primary usage of cash in its financing activities in the twelve month period ended December 31, 2021 include the principal payments on long-term debt and equipment financing obligations of approximately $1,786,000 partially offset by proceeds from equipment financing and proceeds from the line of credit of approximately $884,000. Approximately $81,000 was used for the purchase of treasury shares to satisfy tax obligations for the employee vested restricted stock shares.
As of March 20, 2020, the Company increased its line of credit from $4,000,000 to $6,000,000. As of July 31, 2020, the Company extended the line of credit from December 31, 2021 to December 31, 2022. On January 11, 2022, the Company executed an amendment to the loan agreement, which extended the line of credit availability period from December 31, 2022 to December 31, 2023. The amended agreement suspended the Debt Service Coverage Ratio loan covenant up through and including the third quarter of 2022. A Quarterly Minimum Cash Flow measurement loan covenant replaced the Debt Service Coverage Ratio loan covenant. Minimum Cash Flow means net income, plus depreciation, depletion, and amortization expense, plus interest expense, plus non-cash expense related to the Servotronics, Inc. Employee Stock Ownership Plan, plus non-cash stock and stock option transactions.
Through the third quarter of 2022, the amended agreement requires the Company to maintain a minimum liquidity, defined as cash on hand plus line of credit availability of at least $9,000,000.
The interest rate is a rate per year equal to the sum of (i) the greater of the Bloomberg’s Short-Term Bank Yield (BSBY) Daily Floating Rate or the Index Floor, plus (ii) 1.65 percentage point(s). For purposes of this paragraph, “Index Floor” means 0.5 percent.
The line of credit is secured by all personal property of the Company with the exception of certain equipment that was purchased from proceeds of government grants. There was $4,250,000 balance outstanding at December 31, 2021 and $3,750,000 balance at December 31, 2020. The phase out of LIBOR and transition to the BSBY Daily Floating Rate is not expected to have a significant impact on the Company’s operating results, financial position, or cash flows as the only outstanding debt is the line of credit.
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. The loan term for the equipment covered by the agreement is 60 months. Monthly payments are fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. There is approximately $712,000 outstanding as of December 31, 2021 and $534,000 outstanding at December 31, 2020.
On April 21, 2020, the Company executed a promissory note (the “Note”) in the amount of $4,000,000 as part of the Paycheck Protection Program (the “PPP Loan”) administered by the Small Business Administration (the “SBA”) and authorized under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act”). The PPP Loan was made through the Bank of America, NA (the “Lender”). The term of the PPP Loan was two years with an annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan were deferred until the SBA remits the loan forgiveness amount to the lender. The Company used approximately 60% of the amount of the PPP Loan proceeds to pay for payroll costs and the balance on other eligible qualifying expenses consistent with the terms of the PPP and submitted its forgiveness application to the Lender during the third quarter of 2021. During the third quarter, the
entire loan was forgiven by the SBA and a gain of $4,000,000 was recorded in “Other income (expense)” in the Company’s consolidated statements of operations.
Management believes that it should retain the capital generated from operating activities for investment in research and development and programs to retain the Company’s human resources talent. Accordingly, there are no plans to institute a cash dividend within the next year.
The Company believes its cash generating capability and financial condition, together with available credit facilities will be adequate to meet our future operating and investing needs.
The COVID-19 pandemic could impact our liquidity. Lower production schedules, possible inability of our customers to make timely payments to us, and similar factors could lower cash generated from operations and adversely affect our financial position.
Off Balance Sheet Arrangements
Not applicable.
Critical Accounting Policies
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). As such, the Company is required to make certain estimates, judgments and assumptions that the Company believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ significantly from those estimates under different assumptions and conditions. Note 1, Business Description and Summary of Significant Accounting Policies, of the accompanying consolidated financial statements includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
The Company is a smaller reporting company by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.Financial Statements and Supplementary Data
The consolidated financial statements of the Company which are included in this Form 10-K Annual Report are described in the accompanying Index to Consolidated Financial Statements on Page.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.Controls and Procedures
(i)
Disclosure Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of its management, including the Company’s Principal Executive Officer (“PEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) as of December 31, 2021. Based on that evaluation as of December 31, 2021, the Company’s disclosure controls and procedures were not effective as a result of the material weakness in internal controls over financial reporting.
(ii)
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Under the supervision and with the participation of management, including the PEO and CFO, the Company, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. The Company’s management noted the following control deficiencies that, individually and in the aggregate, constitute a material weakness in the Company’s internal controls over financial reporting as of December 31, 2021:
Ø A failure to complete the design and implement effective internal controls related to certain information technology (IT) general controls including: establishing written IT policies, performing a formal IT risk assessment, establishing offsite backup, and monitoring logical access and change management;
Ø Management’s assessment of entity-level controls and certain control activities was not sufficiently performed and documented to support their conclusions, and;
Ø As a result of the above items, we also concluded that management’s oversight of internal controls was not operating effectively.
(iii)
Changes in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected in a timely basis by the Company’s internal controls. As a result, management has concluded that the Company’s internal control over financial reporting was not effective at December 31, 2021. Management identified a material weakness in its internal control in connection with its 2020 Form 10-K/A filing and began remediation efforts in 2021 and continues with its remediation plan which includes a comprehensive technology assessment by a third party, including the establishment and implementation of an information technology strategy and improving its risk assessment and documentation over the monitoring of internal controls.
Notwithstanding the existence of the above-mentioned material weaknesses, the Company believes that the consolidated financial statements in this filing fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. generally accepted accounting principles.
This annual report does not include an attestation report of the Corporation’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s independent registered public accounting firm pursuant to rules of the SEC that permit the Corporation to provide only management’s report in this Annual Report on Form 10 K.

---

ITEM 9B. OTHER INFORMATION
Item 9B.Other Information
Not applicable.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10.Directors, Executive Officers and Corporate Governance
Information regarding directors and executive officers of the Company, compliance with Section 16(a) of the Securities Exchange Act and the Company’s Audit Committee, its members and the Audit Committee financial expert, is incorporated herein by reference to the information included in the Company’s definitive proxy statement if it is filed with the Commission within 120 days after the end of the Company’s 2021 fiscal year or such information will be included by amendment to this Form 10-K.
Code of Ethics
The Company has adopted a Code of Ethics and Business Conduct (the Code) that applies to all directors, officers and employees of the Company as required by the listing standards of the NYSE American. The Code is available on the Company’s website at www.servotronics.com and the Company intends to disclose on this website any amendment to the Code. Waivers under the Code, if any, will be disclosed under the rules of the SEC and the NYSE American.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11.Executive Compensation
Information regarding executive compensation is incorporated herein by reference to the information included in the Company’s definitive proxy statement if it is filed with the Commission within 120 days after the end of the Company’s 2021 fiscal year or such information will be included by amendment to this Form 10-K.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth the securities authorized for issuance under the Company’s equity compensation plans as of December 31, 2021:
Number of
Number of
securities
securities to be
remaining
issued upon
Weighted-average
available for
exercise of
exercise price of
future issuance
outstanding
outstanding
under
options,
options
equity
warrants and
warrants and
compensation
Plan category
rights
rights
plans
Equity compensation plans approved by security holders
-
-
88,277
Equity compensation plans not approved by security holders
-
-
-
Total
-
-
88,277
Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference to the information included in the Company’s definitive proxy statement if it is filed with the Commission within 120 days after the end of the Company’s 2021 fiscal year or such information will be included by amendment to this Form 10-K.
Also incorporated by reference is the information in the table under the heading “Company Purchases of Company’s Equity Securities” included in Item 5 of this Form 10-K. See also Note 7, Shareholders’ Equity, of the accompanying consolidated financial statements for more information.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13.Certain Relationships and Related Transactions and Director Independence
Information regarding certain relationships and related transactions and director independence is incorporated herein by reference to the information included in the Company’s definitive proxy statement if it is filed with the Commission within 120 days after the end of the Company’s 2021 fiscal year or such information will be included by amendment to this Form 10-K.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14.Principal Accountant Fees and Services
Information regarding principal accountant fees and services is incorporated herein by reference to the information included in the Company’s definitive proxy statement if it is filed with the Commission within 120 days after the end of the Company’s 2021 fiscal year or such information will be included by amendment to this Form 10-K.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15.Exhibits and Financial Statement Schedules
3.1
Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3(A)(1) to the Company’s Form 10-KSB for the year ended December 31, 1996)
3.2
Amendments to Certificate of Incorporation dated August 27, 1984 (Incorporated by reference to Exhibit 3(A)(2) to the Company’s Form 10-KSB for the year ended December 31, 1996)
3.3
Amendments to Certificate of Incorporation dated June 30, 1998 (Incorporated by reference to Exhibit 3(A)(4) to the Company’s Form 10-KSB for the year ended December 31, 1998)
3.4
Certificate of designation creating Series I preferred stock (Incorporated by reference to Exhibit 4(A) to the Company’s Form 10-KSB for the year ended December 31, 1987)
3.5
By-laws of the Company (Incorporated by reference to Exhibit 3 to the Company’s Form 8-K filed with the SEC on April 8, 2020)
4.1
Shareholder Rights Plan dated as of October 15, 2012 (Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on October 17, 2012)
4.2
Amendment No. 1 to Shareholder Rights Plan dated as of March 11, 2015 (Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on March 11, 2015)
4.3
Amendment No. 2 to Shareholder Rights Plan dated as of December 22, 2021 (Incorporated by reference to Exhibit 4. To the Company’s Form 8-K filed with the SEC on December 27, 2021)
4.4
Description of Capital Stock (Filed herewith)
Material Contracts (*Indicates management contract or compensatory plan or arrangement)
10.7
Form of Indemnification Agreement between the Registrant and each of its Directors and Officers (Incorporated by reference to Exhibit 10.7 for the year ended December 31, 2016)
10.8
Loan agreement between the Company and its employee stock ownership trust, as amended (Incorporated by reference to Exhibit 10(C)(1) to the Company’s Form 10-KSB for the year ended December 31, 1991)
10.9
Stock purchase agreement between the Company and its employee stock ownership trust (Incorporated by reference to Exhibit 10(D)(2) to the Company’s Form 10-KSB for the year ended December 31, 1988)
10.10*
Servotronics, Inc. 2012 Long-Term Incentive Plan (Incorporated by reference to Appendix A to the Company’s Proxy Statement for the 2012 Annual Meeting of Shareholders)
10.11
Loan Agreement dated as of December 1, 2014 between Servotronics, Inc. and Bank of America, N.A. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on December 4, 2014)
10.12
Loan Agreement dated as of December 1, 2014 between The Ontario Knife Company and Bank of America, N.A. (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on December 4, 2014)
10.13
Non-Employee Director Compensation Policy (Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on August 13, 2020)
Subsidiaries of the Registrant (Filed herewith)
23.1
Consent of Freed Maxick CPAs, P.C. (Filed herewith)
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
The following materials from Servotronics, Inc.’s Annual Report on Form 10-K for the period ended December 31, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows and (v) the notes to the consolidated financial statements.