SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

September 30, December 31,
2020 2019
(Unaudited) (Audited)
Current assets:
Cash $ 7,468 $ 2,029
Accounts receivable, net 6,769 13,183
Inventories, net 25,153 20,151
Prepaid income taxes 768 416
Other current assets 670 522
Total current assets 40,828 36,301

Property, plant and equipment, net 12,360 12,717

Deferred income taxes 107 107

Other non-current assets 337 345

Total Assets $ 53,632 $ 49,470

Liabilities and Shareholders' Equity

Current liabilities:
Current portion of long-term debt $ 548 $ 548
Current portion of equipment financing lease obligations 301 301
Dividend payable 16 17
Accounts payable 3,245 4,458
Accrued employee compensation and benefits costs 2,289 2,283
Other accrued liabilities 752 1,035
Total current liabilities 7,151 8,642

Long-term debt 9,290 5,170

Post retirement obligation 2,423 2,126

Shareholders' equity:
Common stock, par value $0.20; authorized 4,000,000
shares; issued 2,614,506 shares; outstanding
2,401,001 (2,399,576 - 2019) shares

523

523

Capital in excess of par value 14,459 14,358
Retained earnings 21,565 20,484
Accumulated other comprehensive income 98 98
Employee stock ownership trust commitment (460 ) (460 )
Treasury stock, at cost 126,079 (127,504 - 2019) shares (1,417 ) (1,471 )
Total shareholders' equity 34,768 33,532

Total Liabilities and Shareholders' Equity $ 53,632 $ 49,470

~~See notes to condensed consolidated financial statements~~

~~- 3 -~~

~~SERVOTRONICS, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

($000’s omitted except per share data)

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Revenue $ 10,297 $ 12,362 $ 39,249 $ 38,432

Costs of goods sold, inclusive of depreciation and amortization 10,462 8,827 31,682 29,555
Gross margin (loss) income (165 ) 3,535 7,567 8,877

Operating Expenses:
Selling, general and administrative 2,096 2,134 6,112 6,436
Interest expense 42 31 134 88

Total operating expenses 2,138 2,165 6,246 6,524

(Loss) income before income tax provision (2,303 ) 1,370 1,321 2,353

Income tax (benefit) provision (521 ) 238 240 409

Net (loss) income $ (1,782 ) $ 1,132 $ 1,081 $ 1,944

Income per share:
Basic
Net (loss) income per share $ (0.75 ) $ 0.49 $ 0.46 $ 0.84

Diluted
Net (loss) income per share $ (0.75 ) $ 0.47 $ 0.45 $ 0.82


	September 30,		December 31,
	2021		2020
	(Unaudited)		(Audited)
Current assets:
Cash	$	11,826	$	5,935
Accounts receivable, net		8,151		7,636
Other receivables-employee retention credit (ERC)		1,028		—
Inventories, net		20,620		23,406
Prepaid income taxes		465		483
Other current assets		626		383
Total current assets		42,716		37,843

Property, plant and equipment, net		11,048		12,017

Deferred income taxes		125		137

Other non-current assets		324		331

Total Assets	$	54,213	$	50,328

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	423	$	2,334
Current portion of capitalized loan/lease obligations		378		301
Dividend payable		—		12
Accounts payable		1,568		1,599
Accrued employee compensation and benefits costs		2,158		1,649
Other accrued liabilities		3,553		874
Total current liabilities		8,080		6,769
Long-term debt		4,829		7,293
Post retirement obligation		2,556		2,529

Shareholders’ equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,614,506 shares; outstanding 2,419,923 (2,416,683 - 2020) shares		523		523
Capital in excess of par value		14,498		14,481
Retained earnings		26,768		21,803
Accumulated other comprehensive loss		(1,310)		(1,356)
Employee stock ownership trust commitment		(359)		(359)
Treasury stock, at cost 122,839 (126,079 - 2020) shares		(1,372)		(1,355)
Total shareholders’ equity		38,748		33,737

Total Liabilities and Shareholders’ Equity	$	54,213	$	50,328

See notes to condensed consolidated financial statements

- 43 -

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~OPERATIONS

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

(Unaudited)

Nine Months Ended
September 30,
2020 2019
Cash flows related to operating activities:
Net Income $ 1,081 $ 1,944
Adjustments to reconcile net income to net cash
generated/(used) by operating activities:
Depreciation and amortization 1,072 902
Gain on disposal of property (1 ) (7 )
Stock based compensation 255 239
Decrease in doubtful accounts (150 ) (29 )
Increase/(decrease) in inventory reserve 240 (55 )
Decrease in warranty reserve (133 ) (8 )

Change in assets and liabilities:
Accounts receivable 6,564 (334 )
Inventories (5,242 ) (4,674 )
Prepaid income taxes (352 ) 314
Other current assets (148 ) 234
Other non-current assets 1 (125 )
Accounts payable (1,213 ) 848
Accrued employee compensation and benefit costs 6 264
Other accrued liabilities 147 228
Accrued income taxes - 14

Net cash generated/(used) by operating activities 2,127 (245 )

Cash flows related to investing activities:
Capital expenditures - property, plant and equipment (708 ) (1,660 )
Proceeds from sale of assets - 94
Note Receivable - (125 )
Net cash (used) by investing activities (708 ) (1,691 )

Cash flows related to financing activities:
Principal payments on long-term debt (410 ) (411 )
Principal payments on equipment financing lease obligations (220 ) (208 )
Proceeds from equipment note and equipment financing lease obligations - 676
Proceeds from the line of credit 750 1,000
Purchase of treasury shares (100 ) (157 )
Proceeds from paycheck protection program 4,000 -
Cash dividend - (404 )
Net cash generated by financing activities 4,020 496
Net increase/(decrease) in cash 5,439 (1,440 )
Cash at beginning of period 2,029 2,598
Cash at end of period $ 7,468 $ 1,158
Supplemental Cash Flow Information:
Equipment acquired through financing paid directly to vendor $ - $ 286


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

Revenue	$	10,915	$	10,297	$	30,003	$	39,249

Costs of goods sold, inclusive of depreciation and amortization		9,143		10,462		25,366		31,682
Gross margin income/(loss)		1,772		(165)		4,637		7,567

Operating Expenses:
Selling, general and administrative		2,721		2,096		6,903		6,112
Legal settlement awards		1,890		—		1,890		—
Total operating expenses		4,611		2,096		8,793		6,112
Operating (loss)/income		(2,839)		(2,261)		(4,156)		1,455

Other income/(expense):
Employee retention credit (ERC)		1,978		—		5,622		—
Paycheck Protection Program loan forgiveness		4,000		—		4,000		—
Interest expense		(5)		(42)		(132)		(134)
Total other income/(expense)		5,973		(42)		9,490		(134)

Income/(loss) before income tax provision		3,134		(2,303)		5,334		1,321

Income tax (benefit)/ provision		(104)		(521)		369		240

Net income/(loss)	$	3,238	$	(1,782)	$	4,965	$	1,081

Income per share:
Basic
Net income (loss) per share	$	1.34	$	(0.75)	$	2.07	$	0.46
Diluted
Net income (loss) per share	$	1.34	$	(0.75)	$	2.06	$	0.45

See notes to condensed consolidated financial statements

- 4 -

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

($000’s omitted except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

Net income/(loss)	$	3,238	$	(1,782)	$	4,965	$	1,081

Other comprehensive income items:
Actuarial gain		19		—		58		—
Income tax expense on actuarial gain		(4)		—		(12)		—
Other comprehensive income:
Retirement benefits adjustments, net of income taxes		15		—		46		—

Total comprehensive income (loss)	$	3,253	$	(1,782)	$	5,011	$	1,081

See notes to condensed consolidated financial statements

- 5 -

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

($000’s omitted except per share data)

(Unaudited)


	Nine Months Ended
	September 30,
	2021		2020
Cash flows related to operating activities:
Net Income	$	4,965	$	1,081
Adjustments to reconcile net income to net cash generated/(used) by operating activities:
Paycheck Protection Program loan forgiveness		(4,000)		—
Depreciation and amortization		1,043		1,072
Gain on disposal of property		—		(1)
Stock based compensation		81		255
Decrease in doubtful accounts		(34)		(150)
(Decrease)/increase in inventory reserve		(75)		240
Increase/(decrease) in warranty reserve		14		(133)
Deferred income taxes		12		—
Change in assets and liabilities:
Accounts receivable		(481)		6,564
Other receivables: employee retention credit		(1,028)		—
Inventories		2,861		(5,242)
Prepaid income taxes		18		(352)
Other current assets		(242)		(148)
Other non-current assets		—		1
Accounts payable		(31)		(1,213)
Dividends payable		(12)		(1)
Accrued employee compensation and benefit costs		509		6
Other accrued liabilities		2,665		147
Postretirement benefits		73		—
Net cash generated by operating activities		6,338		2,126

Cash flows related to investing activities:
Capital expenditures - property, plant and equipment		(68)		(708)
Net cash (used) by investing activities		(68)		(708)

Cash flows related to financing activities:
Principal payments on long-term debt		(911)		(410)
Principal payments on equipment financing lease obligations		(271)		(220)
Proceeds from equipment note and equipment financing lease obligations		384		—
Proceeds from the line of credit		500		750
Purchase of treasury shares		(81)		(100)
Proceeds from Paycheck Protection Program		—		4,000
Net cash (used) generated by financing activities		(379)		4,020
Net increase in cash		5,891		5,438
Cash at beginning of period		5,935		2,029
Cash at end of period	$	11,826	$	7,467

See notes to condensed consolidated financial statements

- 6 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	1. Basis of Presentation

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

The accompanying consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021. The consolidated financial statements should be read in conjunction with the ~~2019~~2020 annual report and the notes thereto.

2.	2. Business Description and Summary of Significant Accounting Policies

Business Description

Servotronics, Inc. and its subsidiaries 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.

Principles of Consolidation

The consolidated financial statements include the accounts of Servotronics, Inc. and its wholly-owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated upon consolidation.

Cash

The Company considers cash to include all currency and coins owned by the Company as well as all deposits in the bank including checking accounts and savings accounts.

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 doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on history of past write-offs, collections, and current credit conditions. The allowance for doubtful accounts amounted to approximately ~~$188,000~~$154,000 at September 30, ~~2020~~2021 and ~~$337,000~~$188,000 at December 31, ~~2019.~~2020. 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. Our revenue transactions generally consist of a single performance obligation to transfer contracted goods and are not accounted for under industry-specific guidance. Purchase orders generally include specific terms relative to quantity, item description, specifications, price, customer responsibility for in-process costs, delivery schedule, shipping point, payment and other standard terms and conditions of purchase. Service sales, principally representing repair, are recognized at the time of shipment of goods.

~~- 6 -~~

~~SERVOTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The costs incurred for nonrecurring engineering, development and repair activities of our products under agreements with commercial customers are expensed as incurred. Subsequently, the revenue is recognized as products are delivered to the customers with the approval by the customers.

Revenue is recognized at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods and services to a customer. The Company determines revenue recognition using the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when the company satisfies a performance obligation.

- 7 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Revenue excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (e.g., sales and use taxes). Revenue includes payments for shipping activities that are reimbursed by the customer to the Company.

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

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

Warranty and repair obligations are assessed on all returns. Revenue is not recorded on any warranty returns. The Company warrants its products against design, materials and workmanship based on an average of twenty-seven months. The Company determines warranty reserves needed based on actual average costs of warranty units shipped and current facts and circumstances. As of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 under the guidance of ASC460 the Company has recorded a warranty reserve of approximately ~~$287,000~~$396,000 and ~~$420,000,~~$382,000, respectively. This amount is reflected in other accrued expenses in the accompanying consolidated balance sheets. Revenue is recognized on repair returns, covered under a customer contract, at the contractual price upon shipment to the customer.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost includes all costs incurred to bring each product to its present location and condition. Market provisions in respect of lower of cost or market adjustments and inventory expected to be used in greater than ~~two~~2 years are applied to the gross value of the inventory through a reserve of approximately ~~$1,677,000~~$1,645,000 and ~~$1,437,000~~$1,720,000 at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Pre-production and start-up costs are expensed as incurred.

~~- 7 -~~

~~SERVOTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The purchase of suppliers’ minimum economic quantities of material such as steel, etc. may result in a purchase of quantities exceeding one year of customer requirements. Also, in order to maintain a reasonable and/or agreed to lead time, certain larger quantities of other product support items may have to be purchased and may result in over ~~one~~1 year’s supply. These amounts are not included in the inventory reserve discussed above.

Shipping and Handling Costs

Shipping and handling costs are classified as a component of cost of goods sold.

Property, Plant and Equipment

Property, plant and equipment is carried at cost; expenditures for new facilities and equipment and expenditures which substantially increase the useful lives of existing plant and equipment are capitalized; expenditures for maintenance and repairs are expensed as incurred. Upon disposal of properties, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposition is included in income.

- 8 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Depreciation is provided on the basis of estimated useful lives of depreciable properties, primarily by the straight-line method for financial statement purposes and by accelerated methods for income tax purposes. Depreciation expense includes the amortization of right-of-use (“ROU”) assets accounted for as finance leases. The estimated useful lives of depreciable properties are generally as follows:


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

Income Taxes


										For the Nine Months Ended
										September 30,
										2021			2020			% Change
	For the Nine Months
	Ended
	September 30,
	2020			2019			% Change
	($000's omitted)
Income tax expense	$	240		$	409			(41.3	)%
										($000’s omitted)
Income Tax Expense										$	369		$	240		53.8	%
Effective tax rate		18.2	%		17.4	%		0.8	%		6.9	%		18.2	%	(62.1)	%

The ~~higher~~decrease in the effective tax rate during the nine months ended September 30, ~~2020~~2021 was primarily due to a decrease in permanent deductible ~~expenses.~~

~~In response to COVID-19,~~expenses, primarily the ~~Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law on March 27, 2020. The CARES Act provides numerous tax provisions~~PPP loan forgiveness and other ~~stimulus measures, including temporary changes regarding~~permanent differences. In addition, there are other permanent deductions that decreased the ~~prior~~effective tax rate and ~~future utilization of net operating losses, temporary suspension of certain payment requirements for~~our investments in research and development has increased the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. The Company is currently evaluating the impact of these measures on its consolidated financial statements. If these measures are determined to be applicable to the Company, they may result in cash refunds and an income tax benefit recorded in the consolidated statement of operations.

~~- 8 -~~

~~SERVOTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

R&D credit.

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 ~~Texas~~Connecticut state income tax returns and ~~various~~a separate Arkansas state income tax ~~returns.~~

return.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at September 30, ~~2020~~2021 or December 31, ~~2019,~~2020, and did not recognize any interest and/or penalties in its consolidated statements of ~~operations~~income and (loss) during the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of September 30, ~~2020~~2021 and December 31, ~~2019. On July 16,~~2020. The 2017 through 2020 ~~the Company was notified that the 2017 federal income tax return was randomly selected for examination. The 2016 through 2019~~ federal and state tax returns remain subject to examination.

Supplemental Cash Flow Information

Income taxes paid during the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 amounted to approximately ~~$425,000~~$345,000 and ~~$0,~~$425,000, respectively. Interest paid during the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 amounted to approximately $110,000 and $116,000, ~~and $88,000,~~ respectively.

Employee Stock Ownership Plan

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

- 9 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable based on undiscounted future operating cash flow analyses. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Due to the losses incurred by our Consumer Products Group (“CPG”), we performed a test for recoverability of the long-lived assets by comparing its carrying value to the future undiscounted cash flows that we expect will be generated by the asset group. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. The Company has determined that no impairment of long-lived assets existed at September 30, ~~2020~~2021 and December 31, ~~2019.~~

2020.

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 conform to classifications adopted in the current period.

Research and Development Costs

Research and development costs are expensed as incurred.

~~- 9 -~~

~~SERVOTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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 does not anticipate nonperformance by the financial institutions.

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 long-term debt, the fair value approximates its carrying amount.

Recent Accounting Pronouncements Adopted

3.

~~Inventories~~

We consider the applicability and impact of all accounting standards updates (ASUs). Recent ASUs were assessed and determined to be either not applicable, or had and are expected to have minimal impact on our financial statements and related disclosures.

September 30, December 31,
2020 2019
($000's omitted)
Raw material and common parts $ 17,599 $ 14,707
Work-in-process 4,700 4,158
Finished goods 4,531 2,723
26,830 21,588
Less inventory reserve (1,677 ) (1,437 )
Total inventories $ 25,153 $ 20,151

4.

~~Property, Plant and Equipment~~

September 30, December 31,
2020 2019
($000's omitted)
Land $ 7 $ 7
Buildings 11,641 11,017
Machinery, equipment and tooling 20,820 20,695
Construction in progress 222 331
32,690 32,050
Less accumulated depreciation and amortization (20,330 ) (19,333 )
Total property, plant and equipment $ 12,360 $ 12,717

3. Inventories


	September 30,		December 31,
	2021		2020

	($000’s omitted)
Raw material and common parts	$	16,266	$	16,989
Work-in-process		2,760		4,273
Finished goods		3,239		3,864
		22,265		25,126
Less inventory reserve		(1,645)		(1,720)
Total inventories	$	20,620	$	23,406

- 10 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Property, Plant and Equipment


	September 30,		December 31,
	2021		2020

	($000’s omitted)
Land	$	7	$	7
Buildings		11,363		11,359
Machinery, equipment and tooling		21,193		21,146
Construction in progress		215		198
		32,778		32,710
Less accumulated depreciation and amortization		(21,730)		(20,693)
Total property, plant and equipment	$	11,048	$	12,017

Depreciation and amortization expense amounted to approximately ~~$356,000~~$329,000 and ~~$339,000~~$356,000 for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Amortization expense primarily related to ROU assets amounted to approximately ~~$15,000~~$8,000 and ~~$18,000~~$15,000 for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Depreciation and amortization expense amounted to approximately ~~$1,072,000~~$1,043,000 and ~~$902,000~~$1,072,000 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Amortization expense, primarily related to ROU assets, amounted to approximately ~~$50,000~~$42,000 and ~~$59,000~~$50,000 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company maintains property and casualty insurance in amounts adequate for the risk and nature of its assets and operations and which are generally customary in its industry.

~~- 10 -~~

~~SERVOTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

As of September 30, ~~2020,~~2021, there is approximately ~~$222,000~~$215,000 ($~~331,000~~198,000 – December 31, ~~2019)~~2020) of construction in progress (CIP) included in property, plant and equipment all of which is related to capital projects. There is approximately ~~$192,000~~$214,000 for machinery & ~~equipment; $22,000~~equipment and self-constructed assets ($191,000 – December 2020), $0 for computer equipment ($7,000 – December 2020) and $1,000 for building improvements ~~and $8,000 for IT equipment and software, not yet put into service.~~($0 – December 2020) primarily related to the at the Advanced Technology Group.

5.

~~Long-Term Debt~~

September 30, December 31,
2020 2019
($000's omitted)
Paycheck protection program payable to financial institutions: Interest rate of 1% per annum. Unforgiven portion is payable monthly until April 20, 2022 (A) $ 4,000 $ -

Line of credit payable to a financial institution; Interest rate option of bank prime or Libor plus 1.65% (B)(C) 3,750 3,000

Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (1.556% as of September 30,2020), monthly principal payments of $21,833 through 2021 with a balloon payment of $786,000 due December 1, 2021(C). 1,114 1,310

Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (1.556% as of September 30,2020), monthly principal payments of $23,810 through December 1, 2021(C). 357 571

Equipment note obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/factor 1.8259% - 1.835015% as of June 30, 2020)(D) 569 670

Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. (Interest rate/ factor 1.822758% - 1.869304% at time of funding)(E) 349 468
10,139 6,019
Less current portion (849 ) (849 )
$ 9,290 $ 5,170

~~-11-~~

- 11 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Long-Term Debt


	September 30,		December 31,
	2021		2020

	($000’s omitted)
Paycheck protection progam payable to financial institutions: Interest rate of 1% per annum. Unforgiven portion is payable monthly until April 20, 2022 (A)	$	0	$	4,000

Line of credit payable to a financial institution; Interest rate option of bank prime or Libor plus 2.15% (B)(C)		4,250		3,750

Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.486%, monthly principle payments of $21,833 through 2021 with a balloon payment of $286,000 due December 1, 2021(C).		352		1,048

Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.486%, monthly principal payments of $23,810 through December 1, 2021 (C).		71		286

Equipment note obligations; Interest rate fixed for term of each funding based upon the Lender’s lease pricing at time of funding. Interest rate/factor 1.795535% - 1.835015% as of September 30, 2021.(D)		765		534

Equipment financing lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding. Interest rate/ factor 1.822758% - 1.869304% at time of funding)(E)		192		310
		5,630		9,928
Less current portion		(801)		(2,635)
Long-term debt	$	4,829	$	7,293

A.)

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~~“CARES Act”). The PPP Loan is being made through the Bank of America, NA (the “Lender”). The term of the PPP Loan is two years with an annual interest rate of 1.00%. Payments on the unforgiven amount of principal, if any, and interest on the PPP Loan will be deferred until the date on which loan forgiveness is determined or 10 months after the end of the borrower’s covered period if forgiveness is not requested.”

The Company used approximately 60% 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 in the amount of $4,000,000 and the accrued interest of $57,000 was forgiven by the SBA and a gain of $4,057,000 was recorded in “Other income/(expense)” in the Company’s condensed consolidated statements of operations.

B.)

~~As of March 20, 2020, the~~The Company ~~increased its~~has a $6,000,000 line of ~~credit from $4,000,000 to $6,000,000. As of July 31, 2020, the Company extended the line of credit to expire December 21, 2022. As of July 31, 2020, the~~credit. The interest rate is a rate per year is equal to the bank’s prime rate or Libor plus ~~1.65%~~2.15%. In addition, the Company is required to pay a commitment fee of 0.25% per year on the unused portion of the line of credit. There was ~~$3,750,000~~$4,250,000 balance outstanding at September 30, ~~2020~~2021 and ~~$3,000,000~~$3,750,000 balance at December 31, ~~2019.~~2020.

C.)

The term loans and line of credit are secured by all personal property of the Company with the exception of certain equipment that was purchased from proceeds of government grants. Certain lenders require the Company to comply with debt covenants as described in the specific loan documents, including a debt service ratio. At September 30, ~~2020~~2021 and December 31, ~~2019~~2020 the Company was in compliance with these covenants.

- 12 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

D.)

The Company had an equipment loan facility in the amount of ~~$2,500,000~~$1,000,000 available until ~~November 30, 2019.~~July 9, 2021. This line ~~was~~is non-revolving and non-renewable. ~~The Company used approximately $721,000 of the available funds for the purchase of machinery and equipment.~~ 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. During the nine months ended September 30, 2021, approximately $384,000 was drawn on this facility. There was approximately ~~$569,000~~$765,000 outstanding at September 30, ~~2020~~2021 and ~~$670,000~~$534,000 balance outstanding at December 31, ~~2019.~~2020.

E.)

The Company established a lease line of credit for equipment financing in the amount of $1,000,000 available until June 28, 2018. This line was non-revolving and non-renewable. The lease term for equipment covered by the lease line of credit 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 was approximately ~~$349,000~~$192,000 outstanding at September 30, ~~2020~~2021 and ~~$468,000~~$310,000 at December 31, ~~2019.~~2020.

The Company has 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 nothing outstanding as of September 30, 2020 and at December 31, 2019.

Remaining principal maturities of long-term debt are as follows: ~~2020 - $219,000,~~ 2021 - ~~$1,635,000,~~$524,000, 2022 - ~~$4,038,000,~~$4,614,000, 2023 - ~~$154,000 and~~$231,000, 2024 - ~~$93,000.~~$178,000, 2025 - $77,000 and 2026 - $6,000. Remaining principal payments and interest payments for the capital note and capital equipment financing lease obligations for each of the next five years: ~~(Excluding PPP Loan)~~


		September 30,		December 31,
	Year	2021		2020

		($000’s omitted)

	2021	$	137	$	331
	2022		393		316
	2023		246		169
	2024		188		112
	2025+		90		—
Total principal and interest payments			1,054		928
Less amount representing interest			(97)		(83)
Present value of net minimum lease payments			957		845
Less current portion			(378)		(301)
Long-term principle payments		$	579	$	544

~~-12-~~6.Postretirement Benefit Plan

The Company provides certain postretirement health and life insurance benefits for the Company’s Chief Executive Officer and President, and a former executive of the Company (the Plan). Upon retirement and after attaining at least the age of 65, the Company will pay the annual cost of health insurance coverage and provide life insurance offered at the time of retirement. The Plan also provides a benefit to reimburse the participants of certain out-of-pocket medical or health related expenses. The retirees’ insurance benefits cease upon the death of the retired executive. The Plan is unfunded and the projected benefit obligation is actuarially determined on an annual basis as of December 31. Quarterly projections are developed from the annual actuarial valuation as adjusted for actual benefit costs during the quarter. Inherent in these valuations are key assumptions, including the discount rate and expected service and interest costs. As of September 30, 2021 and December 31, 2020 the future accumulated postretirement benefit obligation was approximately $2,556,000 and $2,529,000, respectively and has been accrued and reflected in Post Retirement Obligation in the accompanying condensed consolidated balance sheets.

Benefit cost for the three months ended September 30, 2021 and 2020 totaled $48,000 and $98,000, respectively. Benefit costs for the nine months ended September 30, 2021 and 2020 totaled $143,000 and $296,000, respectively.

- 13 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, December 31,
Year 2020 2019
($000's omitted)
2020 $ 83 $ 331
2021 331 331
2022 316 316
2023 169 169
2024 97 97
Total principal and interest payments 996 1,244
Less amount representing interest (78 ) (106)
Present value of net minimum lease payments 918 1,138
Less current portion (301 ) (301)
Long term principle payments $ 617 $837

~~-13-~~(Unaudited)

~~SERVOTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

6.7. Shareholders’ Equity

	Nine-month Period Ended September 30, 2020
				Accumulated
				Other				Capital in								Total
	Retained			Comprehensive		Common Stock		excess of					Treasury			shareholders'
	Earnings			Income				par value		ESOT			stock			equity
January 1, 2020	$	20,484		$	98	$	523	$	14,358	$	(460	)	$	(1,471	)	$	33,532


																			Nine-month Period Ended September 30, 2021
																					Accumulated
																					Other				Capital in						Total
																			Retained		Comprehensive				excess of				Treasury		shareholders’
																			Earnings		Income		Common Stock		par value		ESOT		stock		equity

December 31, 2020																			$	21,803	$	(1,356)	$	523	$	14,481	$	(359)	$	(1,355)	$	33,737

Retirement benefits adjustment																				0		15		0		0		0		0		15
Stock based compensation																				0		0		0		11		0		20		31
Purchase of treasury shares		-			-		-		-		-			(100	)		(100	)		0		0		0		0		0		(81)		(81)
Net Income																				541		0		0		0		0		0		541

March 31, 2021																			$	22,344	$	(1,341)	$	523	$	14,492	$	(359)	$	(1,416)	$	34,243

Retirement benefits adjustment																				0		16		0		0		0		0		16
Stock based compensation		-			-		-		33		-			52			85			0		0		0		5		0		20		25
Net Income		1,898			-		-		-		-			-			1,898			1,186		0		0		0		0		0		1,186

March 31, 2020	$	22,382		$	98	$	523	$	14,391	$	(460	)	$	(1,519	)	$	35,415


June 30, 2021																			$	23,530	$	(1,325)	$	523	$	14,497	$	(359)	$	(1,396)	$	35,470

Retirement benefits adjustment																				0		15		0		0		0		0		15
Stock based compensation		-			-		-		39		-			48			87			0		0		0		1		0		24		25
Net Income		965			-		-		-		-			-			965			3,238		0		0		0		0		0		3,238

June 30, 2020	$	23,347		$	98	$	523	$	14,430	$	(460	)	$	(1,471	)	$	36,467

Stock based compensation		-			-		-		29		-			54			83
Net Loss		(1,782	)		-		-		-		-			-			(1,782	)

September 30, 2020	$	21,565		$	98	$	523	$	14,459	$	(460	)	$	(1,417	)	$	34,768

September 30, 2021																			$	26,768	$	(1,310)	$	523	$	14,498	$	(359)	$	(1,372)	$	38,748

	Nine-month Period Ended September 30, 2019
				Accumulated
				Other				Capital in								Total
	Retained			Comprehensive		Common Stock		excess of					Treasury			shareholders'
	Earnings			Income				par value		ESOT			stock			equity
January 1, 2019	$	18,788		$	35	$	523	$	14,250	$	(561	)	$	(1,522	)	$	31,513


																			Nine-month Period Ended September 30, 2020
																					Accumulated
																					Other				Capital in						Total
																			Retained		Comprehensive				excess of				Treasury		shareholders’
																			Earnings		Income		Common Stock		par value		ESOT		stock		equity
December 31, 2019																			$	20,484	$	98	$	523	$	14,358	$	(460)	$	(1,471)	$	33,532

Stock based compensation																				0		0		0		33		0		52		85
Purchase of treasury shares		-			-		-		-		-			(128	)		(128	)		0		0		0		0		0		(100)		(100)
Net Income																				1,898		0		0		0		0		0		1,898

March 31, 2020																			$	22,382	$	98	$	523	$	14,391	$	(460)	$	(1,519)	$	35,415

Stock based compensation		-			-		-		14		-			44			58			0		0		0		39		0		48		87
Net Income		98			-		-		-		-			-			98			965		0		0		0		0		0		965

March 31, 2019	$	18,886		$	35	$	523	$	14,264	$	(561	)	$	(1,606	)	$	31,541

Dividends declared ($0.16 per share)		(413	)		-		-		-		-			-			(413	)
Purchase of treasury shares		-			-		-		-		-			(21	)		(21	)

June 30, 2020																			$	23,347	$	98	$	523	$	14,430	$	(460)	$	(1,471)	$	36,467

Stock based compensation		-			-		-		34		-			61			95			0		0		0		29		0		54		83
Net Income		714			-		-		-		-			-			714

June 30, 2019	$	19,187		$	35	$	523	$	14,298	$	(561	)	$	(1,566	)	$	31,916

Purchase of treasury shares		-			-		-		-		-			(8	)		(8	)
Stock based compensation		-			-		-		28		-			58			86
Net Income		1,132			-		-		-		-			-			1,132

September 30, 2019	$	20,319		$	35	$	523	$	14,326	$	(561	)	$	(1,516	)	$	33,126
Net Loss																				(1,782)		0		0		0		0		0		(1,782)

September 30, 2020																			$	21,565	$	98	$	523	$	14,459	$	(460)	$	(1,417)	$	34,768

The Company’s Board of Directors authorized the purchase of up to 450,000 shares of its common stock in the open market or in privately negotiated transactions. As of September 30, ~~2020,~~2021, the Company has purchased 360,615 shares and there remains 89,385 shares available to purchase under this program. There were ~~360~~0 shares and ~~5,232~~360 shares purchased by the Company during the nine month period ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

~~-14-~~

~~SERVOTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company’s 2012 Long-Term Incentive Plan provides for the granting of stock awards, including restricted stock, stock options and stock appreciation rights, to employees and non-employees, including directors of the Company. Compensation expense is amortized over the related service period, which is normally three years. Shares of unvested restricted stock are generally forfeited if a recipient leaves the Company before the vesting date. Shares that are forfeited become available for future awards.

~~The following is a summary~~On January 1, 2021, 25,250 shares of restricted stock ~~activity for the nine months ended September 30, 2020. Of the~~vested of which 9,920 shares ~~that vested,~~were withheld by the Company ~~withheld 9,543 shares~~for approximately $81,000 to satisfy ~~the~~statutory minimum withholding tax ~~obligations~~requirements for those participants who elected this option as permitted under the applicable equity plan.

- 14 -

	~~Shares~~
~~Unvested at December 31, 2019~~		~~54,416~~

~~Granted~~		~~11,328~~
~~Forfeited~~		-
~~Vested~~		~~31,998~~
~~Unvested at September 30, 2020~~		~~33,746~~

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company’s director compensation policy provides that non-employee directors receive a portion of their annual retainer in the form of restricted stock under the Company’s 2012 Long-Term Incentive Plan. These shares vest quarterly over a twelve month service period, have voting rights and accrue dividends that are paid upon vesting. The aggregate amount of expense to the Company, measured based on the grant date fair value, will be recognized over the requisite service period. An aggregate of 13,160 restricted shares were issued on August 13, 2021 with a grant date fair value of $100,000.

Included in nine months ended September 30, 2021 and December 31, 2020 is approximately $75,000 and $336,000, respectively, of stock-based compensation expense related to the restrictive share awards.


		Weighted Average
		Grant Date Fair
	Shares	Value

Unvested at December 31, 2020	30,914	$	9.24

Granted	13,160		7.60
Vested	34,206		9.08
Unvested at September 30, 2021	9,868	$	7.60

Earnings Per Share

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

	($000’s omitted except per share data)
Net (Loss) Income	$	3,238	$	(1,782)	$	4,965	$	1,081
Weighted average common shares outstanding (basic)		2,410		2,363		2,404		2,358
Unvested restricted stock		10		34		10		34
Weighted average common shares outstanding (diluted)		2,420		2,397		2,414		2,392
Basic
Net (loss) income per share	$	1.34	$	(0.75)	$	2.07	$	0.46
Diluted
Net (loss) income per share	$	1.34	$	(0.75)	$	2.06	$	0.45

~~-15-~~

- 15 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
($000's omitted except per share data)
Net (Loss) Income $ (1,782 ) $ 1,132 $ 1,081 $ 1,944
Weighted average common shares outstanding (basic) 2,363 2,327 2,358 2,325

Unvested restricted stock 34 58 34 58
Weighted average common shares outstanding (diluted) 2,397 2,385 2,392 2,383
Basic
Net (loss) income per share $ (0.75 ) $ 0.49 $ 0.46 $ 0.84
Diluted
Net (loss) income per share $ (0.75 ) $ 0.47 $ 0.45 $ 0.82

7.

~~Commitments and Contingencies~~

8. Litigation

~~Post retirement obligation.~~ ~~As previously disclosed in filings with~~In the ~~Securities and Exchange Commission (“SEC”),~~course of its business, the Company ~~under an employment agreement,~~ is ~~expected to pay post-employment health related benefits~~subject to a ~~former Executive Officer~~variety of claims and lawsuits that are inherently subject to many uncertainties regarding the possibility of a loss to the Company. Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management, after consulting with legal counsel, about future events and can rely heavily on estimates and assumptions. The Company ~~(the “Former Employee”),~~carries liability insurance, subject to certain deductibles and policy limits, for such claims as they arise and may from time to time establish reserves for litigation that is considered probable of ~~which approximately $1,724,000 and $1,543,000~~a loss. The Company does not accrue liabilities when the likelihood that the liability has been ~~accrued as of September 30, 2020 and December 31, 2019, and~~incurred is ~~reflected as Post Retirement Obligation in~~probable but the ~~accompanying consolidated balance sheets.~~

~~Employment Agreements.~~ ~~The Company provides certain post-employment health and life insurance benefits for its Chief Executive Officer and President Kenneth Trbovich. Upon retirement and after attaining at least~~amount cannot be reasonably estimated, or when the age of 65, the Company will pay for the retired Executive’s and dependent’s health benefits and will continue the Company-provided life insurance offered at the time of retirement. The retiree’s health insurance benefits ceases upon the death of the retired executive. Approximately $699,000 and $583,000 has been accrued as of September 30, 2020 and December 31, 2019, respectively, andliability is ~~reflected as Post Retirement Obligation in the accompanying consolidated balance sheets.~~

8.

~~Litigation~~

believed to be only reasonably possible or remote.

The Company has pending litigation relative to leases of certain equipment and real property with a former related party. Aero, Inc. ~~is suing~~sued Servotronics, Inc. and its wholly owned subsidiary and ~~has~~ alleged damages in the amount of $3,000,000. The Company has filed a response to the Aero, Inc. lawsuit and has also filed a counter-claim in the amount of $3,191,000. ~~The~~Substantive settlement negotiations commenced in September 2021 with respect to these claims. In prior quarters, the Company ~~considers~~did not consider the risk of loss ~~remote,~~to be probable and iswas unable to reasonably or accurately estimate the likelihood and amount of any liability or benefit that may be realized as a result of this litigation. While these negotiations have not progressed to the point of a final, binding settlement as of the date of this Quarterly Report on Form 10-Q, the Company recorded a charge of $1,800,000 associated with the proposed settlement as of September 30, 2021. This amount is reflected in other accrued liabilities in the accompanying condensed consolidated balance sheet.

The Company has pending litigation relative to a dispute for work performed by an independent contractor and the use of tooling to perform the necessary work for the Company’s wholly-owned subsidiary, The Ontario Knife Company. Alleged damages was in the amount of $750,000. Substantive settlement negotiations commenced in September 2021 with respect to these claims. In prior quarters, the Company did not consider the risk of loss to be probable and was unable to reasonably or accurately estimate the likelihood and amount of any liability or benefit that may be realized as a result of this litigation. While these negotiations have not progressed to the point of a final, binding settlement as of the date of this Quarterly Report on Form 10-Q, the Company recorded a charge of $90,000 associated with the proposed settlement as of September 30, 2021. This amount is reflected in other accrued liabilities in the accompanying condensed consolidated balance sheet.

On June 7, 2021, a Summons and Complaint was filed by an employee in the Supreme Court of the State of New York, County of Erie, against Servotronics, Inc., the Servotronics Board of Directors, The Ontario Knife Company and Kenneth D. Trbovich (collectively, the “Defendants”). The Complaint alleges certain violations under the New York Human Rights Law by the Defendants relating to the employee’s employment by the Company as well as intentional and negligent infliction of emotional distress. The complaint also alleges certain purported derivative causes of action against all Defendants, including breach of fiduciary duties, fraud and corporate waste. The complaint seeks monetary damages in an amount not less than $5,000,000 with respect to the direct causes of action and equitable relief with respect to the purported derivative causes of action. The Defendants filed a motion to dismiss the Complaint on August 6, 2021. This litigation is still in its earliest stages. Based on the information known by the Company as of the date of this filing, the Company does not consider the risk of loss to be probable and is unable to reasonably or accurately estimate the likelihood and amount of any liability that may be realized as a result of this litigation. Accordingly, ~~no gain or~~0 loss has been recognized in the accompanying financials statements related to this litigation. The Company intends to vigorously defend against this litigation.

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.

9.

9. Related Party Transactions

The Company paid legal fees and disbursements of approximately ~~$150,000~~$59,000 and ~~$81,000~~$150,000 in the nine month period ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, for services provided by a law firm that is owned by a member of the Company’s Board of Directors. Legal fees paid for the three month period ended September 30, ~~2020~~2021 and ~~2019~~2020 amounted to approximately ~~$18,000~~$13,000 and ~~$33,000,~~$18,000, respectively. Additionally, the Company had accrued unbilled legal fees at September 30, ~~2020~~2021 and ~~2019~~2020 of approximately ~~$25,000~~$13,000 and ~~$49,000,~~$25,000, respectively, with this firm.

~~-16-~~

- 16 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~10.~~

10. Employee Retention Credit

The employee retention credit (ERC) for 2020 was established under the CARES Act and amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the “Relief Act”) provided for changes in the employee retention credit for 2020 and provided an additional credit for the first, second and third calendar quarters of 2021.

The Company evaluated its eligibility for the employee retention credit for the three months ending September 30, 2021. In order to qualify for the ERC in the third quarter of 2021, the Company needed to experience a 20% reduction in gross receipts from either (1) the same quarter in 2019 or (2) the immediate preceding quarter to the corresponding calendar quarter in 2019. It was determined that the Company qualified for the employee retention credit under scenario (2) for September 30, 2021. As a result, for the three month and nine month periods ending September 30, 2021 approximately $1,978,000 and $5,622,000, respectively was recognized in other income for the employee retention credit.

11. Business Segments

The Company operates in ~~two~~2 business segments, ATG and CPG. The Company’s reportable segments are strategic business units that offer different products and services. The segments are composed of separate corporations and are managed separately. Operations in ATG primarily involve the design, manufacture, and marketing of servo-control components (i.e., torque motors, control valves, actuators, etc.) for government, commercial and industrial applications. CPG’s operations involve the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. The Company derives its primary sales revenue from domestic customers, although a portion of finished products are for foreign end use.

As of September 30, ~~2020,~~2021, the Company had identifiable assets of approximately ~~$53,632,000~~$54,213,000 ($~~49,470,000~~50,328,000 – December 31, ~~2019)~~2020) of which approximately ~~$43,531,000~~$44,784,000 ($~~39,980,000~~40,826,000 – December 31, ~~2019)~~2020) was for ATG and approximately ~~$10,101,000~~$9,429,000 ($~~9,490,000~~9,502,000 – December 31, ~~2019)~~2020) was for CPG.

~~-17-~~

~~SERVOTRONICS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Information regarding the Company’s operations in these segments is summarized as follows:

	($000's omitted except per share data)
	ATG						CPG						Consolidated
	Nine Months Ended						Nine Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,
	2020			2019			2020			2019			2020			2019

																			($000’s omitted except per share data)
																			ATG						CPG						Consolidated
																			Nine Months Ended						Nine Months Ended						Nine Months Ended
																			September 30,						September 30,						September 30,
																			2021			2020			2021			2020			2021			2020
Revenues from unaffiliated customers	$	33,228		$	33,926		$	6,021		$	4,506		$	39,249		$	38,432		$	23,495		$	33,228		$	6,508		$	6,021		$	30,003		$	39,249


Cost of goods sold, inclusive of depreciation		(26,495	)		(24,400	)		(5,187	)		(5,155	)		(31,682	)		(29,555	)		(19,214)			(26,495)			(6,152)			(5,187)			(25,366)			(31,682)
Gross margin		6,733			9,526			834			(649	)		7,567			8,877			4,281			6,733			356			834			4,637			7,567
Gross margin %		20.3	%		28.1	%		13.9	%		(14.4	)%		19.3	%		23.1	%		18.2	%		20.3	%		5.5	%		13.9	%		15.5	%		19.3	%


Selling, general and administrative		(4,857	)		(4,558	)		(1,255	)		(1,878	)		(6,112	)		(6,436	)		(5,586)			(4,857)			(1,317)			(1,255)			(6,903)			(6,112)
Interest		(125	)		(66	)		(9	)		(22	)		(134	)		(88	)
Total costs and expenses		(31,477	)		(29,024	)		(6,451	)		(7,055	)		(37,928	)		(36,079	)

Income before income tax provision		1,751			4,902			(430	)		(2,549	)		1,321			2,353

Legal settlement awards																				(1,800)			—			(90)			—			(1,890)			—
Total operating costs and expenses																				(26,600)			(31,352)			(7,559)			(6,442)			(34,159)			(37,794)
Operating (loss)/income																				(3,105)			1,876			(1,051)			(421)			(4,156)			1,455

Employee retention credit (ERC)																				4,584			—			1,038			—			5,622			—
Paycheck Protection Program loan forgiveness																				4,000			—			—						4,000			—
Interest expense																				(130)			(125)			(2)			(9)			(132)			(134)
Total other income (expense)																				8,454			(125)			1,036			(9)			9,490			(134)

Income (loss) before income tax provision																				5,349			1,751			(15)			(430)			5,334			1,321

Income tax provision (benefit)		318			852			(78	)		(443	)		240			409			370			318			(1)			(78)			369			240
Net income (loss)	$	1,433		$	4,050		$	(352	)	$	(2,106	)	$	1,081		$	1,944		$	4,979		$	1,433		$	(14)		$	(352)		$	4,965		$	1,081
Capital expenditures	$	640		$	1,449		$	68		$	211	��	$	708		$	1,660		$	64		$	640		$	4		$	68		$	68		$	708

($000's omitted except per share data)
ATG CPG Consolidated
Three Months Ended Three Months Ended Three Months Ended
September 30, September 30, September 30,
2020 2019 2020 2019 2020 2019
Revenues from unaffiliated customers $ 8,184 $ 11,180 $ 2,113 $ 1,182 $ 10,297 $ 12,362

Cost of goods sold, inclusive of depreciation (8,636 ) (7,378 ) (1,826 ) (1,449 ) (10,462 ) (8,827 )
Gross margin (452 ) 3,802 287 (267 ) (165 ) 3,535
Gross margin % (5.5 )% 34.0 % 13.6 % (22.6 )% (1.6 )% 28.6 %

Selling, general and administrative (1,712 ) (1,539 ) (384 ) (595 ) (2,096 ) (2,134 )
Interest (40 ) (25 ) (2 ) (6 ) (42 ) (31 )
Total costs and expenses (10,388 ) (8,942 ) (2,212 ) (2,050 ) (12,600 ) (10,992 )

Income before income tax provision (2,204 ) 2,238 (99 ) (868 ) (2,303 ) 1,370

Income tax provision (benefit) (512 ) 389 (9 ) (151 ) (521 ) 238
Net income (loss) $ (1,692 ) $ 1,849 $ (90 ) $ (717 ) $ (1,782 ) $ 1,132
Capital expenditures $ 99 $ 288 $ 16 $ 19 $ 115 $ 307

~~-18-~~

- 17 -

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	($000’s omitted except per share data)
	ATG						CPG						Consolidated
	Three Months Ended						Three Months Ended						Three Months Ended
	September 30,						September 30,						September 30,
	2021			2020			2021			2020			2021			2020
Revenues from unaffiliated customers	$	8,449		$	8,184		$	2,466		$	2,113		$	10,915		$	10,297

Cost of goods sold, inclusive of depreciation		(6,762)			(8,635)			(2,381)			(1,827)			(9,143)			(10,462)
Gross margin		1,687			(451)			85			286			1,772			(165)
Gross margin %		20.0	%		(5.5)	%		3.4	%		13.5	%		16.2	%		(1.6)	%

Selling, general and administrative		(2,240)			(1,712)			(481)			(384)			(2,721)			(2,096)
Legal settlement awards		(1,800)			—			(90)			—			(1,890)			—
Total operating costs and expenses		(10,802)			(10,347)			(2,952)			(2,211)			(13,754)			(12,558)
Operating loss		(2,353)			(2,163)			(486)			(98)			(2,839)			(2,261)

Employee retention credit (ERC)		1,598			—			380			—			1,978			—
Paycheck Protection Program loan forgiveness		4,000			—			—			—			4,000			—
Interest expense		(5)			(41)			—			(1)			(5)			(42)
Total other income (expense)		5,593			(41)			380			(1)			5,973			(42)

Income (loss) before income tax provision		3,240			(2,204)			(106)			(99)			3,134			(2,303)

Income tax benefit		(83)			(512)			(21)			(9)			(104)			(521)
Net income (loss)	$	3,323		$	(1,692)		$	(85)		$	(90)		$	3,238		$	(1,782)
Capital expenditures	$	54		$	99		$	1		$	16		$	55		$	115

- 18 -

~~Item 2.~~

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

Results of Operations

During the nine months ended September 30, 2021 and 2020, approximately 78% and 85%, respectively, of the Company’s consolidated revenues were derived from the ATG sale of product to a small base of customers. During the nine months ended September 30, 2021 and 2020, approximately 22% and 15%, respectively, 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 consolidated revenue in the nine months ended September 30, 2021 from 2020 of approximately $9,246,000. This is primary due to a decrease in shipments and price/mix at the ATG of approximately $9,733,000 partially offset by an increase in shipments and price/mix at the CPG of approximately $487,000.

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, the availability and cost of aircraft and other liability insurance coverage, 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 increasing demand for air travel in emerging markets. Although the ATG backlog continues to be strong, actual scheduled shipments may be delayed/changed as a function of the Company’s customers’ final delivery determinations based on changes in the global economy and other factors.

The ATG and CPG continue to respond to U.S. government procurement requests for quotes. New product development activities are ongoing along with the acquisition and development of new product lines.

See also Note 11, Business Segments, of the accompanying condensed consolidated financial statements for information concerning business segment operating results.

Business Environment; Impact of COVID-19 ~~on the Company’s Business~~

The COVID-19 pandemic has been, and continues to be, an unprecedented disruption in the economy and has negatively impacted, and may continue to negatively impact, the Company’s business and results. The COVID-19 pandemic and accompanying economic disruption have caused delays and declines in the placement of customer orders. Accordingly, the Company experienced declines in revenue for the most recently completed ~~third quarter~~nine months compared to the same period of the prior fiscal year. This trend may continue in the near-term and possibly longer, including, without limitation, if the pandemic increases in size and scope, its duration is prolonged or among other matters related thereto, governmental actions, including, without limitation, business restrictions are imposed. In response to the economic and business disruption, the Company has taken actions to reduce costs and spending across the organization. The Company continues to actively monitor the COVID-19 pandemic and may take further actions, including those that may alter business operations, if required by federal, state or local authorities or otherwise determined to be advisable by management.

The Company is focused on ensuring ample liquidity to meet its business needs. To that end, during April 2020, the Company received a loan under the Paycheck Protection Program (the “PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the aggregate principal amount of ~~$4 million.~~$4,000,000. See “Liquidity and Capital Resources” below for additional information regarding the Company’s credit facility and the PPP loan.

The Occupational Safety and Health Administration (OSHA) has been directed to develop a rule requiring each employer with 100 or more employees to ensure its workforce is fully vaccinated or require any workers who remain unvaccinated to produce a negative test result on at least a weekly basis before coming to work. In addition, President Biden has announced an executive order mandating COVID-19 vaccination of U.S. based employees of companies that work on, or in support for, federal contracts. The Company is actively encouraging employees to be vaccinated and has achieved some success in these efforts. The Company also has begun preparing to fulfill its legal obligations under the executive order and the pending OSHA final rule. However, management cannot currently predict the impact that the OSHA rule, if adopted, and executive order would have on our workforce, our ability to secure skilled labor in the future, or the cost of implementation and compliance with such rule and the executive order.

- 19 -

As of the date of this ~~Quarterly Report on Form~~quarterly 10-Q, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. Factors arising from the COVID-19 pandemic that have impacted, or may negatively impact, the Company’s business and results, including sales and gross margin, include, but are not limited to: the Company’s ability to procure materials from suppliers or to meet delivery requirements and commitments to our customers; limitations on the ability of the Company’s employees to perform their work due to impacts caused by the pandemic or local, state, or federal orders that restrict the Company’s operations or the operations of its customers, or require that the employees be quarantined; limitations on the ability of carriers to deliver products to the Company’s facilities and customers; limitations on the ability or desire of the Company’s customers to conduct their business, purchase products and services and pay for purchases on a timely basis or at all; and decreased demand for products and services.

The situation surrounding COVID-19 remains fluid. The Company is unable to determine or predict the nature, duration, or scope of the overall impact that the COVID-19 pandemic will have on the Company’s business, results of operations, liquidity, or financial condition, as such impact will depend on future developments, including the severity and duration of the pandemic and government and other actions taken in response thereto, all of which are highly uncertain. Further, even after the COVID-19 pandemic subsides, the Company may continue to experience adverse impacts to its business as a result of, among other things, any economic impact that has occurred or may occur in the future and changes in customer or supplier behavior.

~~-19-~~

~~Results~~In addition, the employee retention credit (“ERC”) is a refundable tax credit against certain employment taxes. The ERC was established under the CARES Act and amended by the Taxpayer Certainty and Disaster Tax Relief Act of ~~Operations~~

~~During~~2020 (the “Relief Act”) and the ~~nine months ended September 30,~~American Rescue Plan Act of 2021 (“ARPA”). Under the CARES Act, a company needed a more than 50% decline in gross receipts in 2020, ~~and~~compared to the same quarter in 2019, ~~approximately 85% and 88%, respectively, of~~in order to use the ~~Company’s consolidated revenues were derived from~~gross receipts test to be eligible for the ~~ATG sale of product to a small base of customers. During~~credit. The Company determined it did not qualify for the ~~nine months ended September 30,~~ERC for 2020 ~~and 2019, approximately 15% and 12%, respectively, of~~as it did not satisfy the ~~Company’s consolidated revenues were derived from the CPG sale of product to a large base of retail customers. There was an increase~~gross receipts test for any quarter in consolidated revenue in the nine months ended September 30, 2020 from 2019 of approximately $817,000. This is due to an increase in shipments and price/mix at the CPG of approximately $1,419,000 and $96,000, respectively, and an increase in price/mix at the ATG of approximately $640,000 offset by lower shipments at the ATG of approximately $1,338,000.

2020.

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, the availability and cost of aircraft and other liability insurance coverage, market demand and acceptance bothRelief Act provided 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 increasing demand for air travel in emerging markets. Although the ATG backlog continues to be strong, actual scheduled shipments may be delayed/changed as a function of the Company’s customers’ final delivery determinations based on changes in the ~~global economy~~ERC for 2020 and ~~other factors.~~

provided an additional credit for all quarters of 2021. The Relief Act revised the gross receipts test, using two scenarios to qualify: 1) a company that has had a more than 20% decline in gross receipts in 2021, compared to the same quarter in 2019, or 2) a company can elect to use the gross receipts from the immediately preceding quarter, and compare these prior quarter gross receipts to the same quarter in 2019, rather than the current quarter.

The Company evaluated its eligibility for the ERC for the first, second and third quarters of 2021. Under the aggregation rules of the Relief Act, the Company reviewed consolidated revenue when measuring the decline in gross receipts. All employees of the ATG and CPG ~~continue to respond to U.S. government procurement requests~~are treated as a single employer for ~~quotes. New product development activities are ongoing along with the acquisition and development of new product lines.~~

~~See also Note 10, Business Segments,~~purposes of the ~~accompanying consolidated financial statements~~ERC. The Company evaluated its eligibility for ~~information concerning business segment operating results.~~

~~-20-~~the employee retention credit for the three months ending September 30, 2021. In order to qualify for the ERC in the third quarter of 2021, the Company needed to experience a 20% reduction in gross receipts from either (1) the same quarter in 2019 or (2) the immediate preceding quarter to the corresponding calendar quarter in 2019. It was determined that the Company qualified for the employee retention credit under scenario (2) for September 30, 2021. As a result, for the three month and nine month periods ending September 30, 2021 approximately $1,978,000 and $5,622,000, respectively was recognized in other income for the employee retention credit. The Company will monitor for eligibility for the ERC for the remaining quarter of 2021.

- 20 -

The following table compares the Company’s consolidated statements of operations data for the nine months and three months ended September 30, ~~2020~~2021 and ~~2019~~2020 ($000’s omitted):

	($000's omitted except per share data)
	Nine Months Ended September 30,										2020 vs 2019
	2020					2019					Dollar			% Increase
	Dollars		% of Sales			Dollars		% of Sales			Change			(Decrease)

																	($000’s omitted except per share data)
																	Nine Months Ended September 30,
																	2021					2020					2021 vs 2020
																				% of					% of		Dollar
																	Dollars			Sales		Dollars			Sales		Change		% Variance
Revenues:
Advanced Technology	$	33,228		84.7	%	$	33,926		88.3	%	$	(698	)		(2.1	)%
Consumer Products		6,021		15.3	%		4,506		11.7	%		1,515			33.6	%
		39,249		100.0	%		38,432		100.0	%		817			2.1	%

Advanced Technology Group																	$	23,495		78.3	%	$	33,228		84.7	%	$	(9,733)	(29.3)	%
Consumer Products Group																		6,508		21.7	%		6,021		15.3	%		487	8.1	%
																		30,003		100.0	%		39,249		100.0	%		(9,246)	(23.6)	%

Cost of goods sold, inclusive of depreciation and amortization		31,682		80.7	%		29,555		76.9	%		2,127			7.2	%		(25,366)		84.5	%		(31,682)		80.7	%		6,316	(19.9)	%
Gross margin		7,567		19.3	%		8,877		23.1	%		(1,310	)		(14.8	)%		4,637		15.5	%		7,567		19.3	%		(2,930)	(38.7)	%

Gross margin %																		15.5	%				19.3	%

Selling, general and administrative		6,112		15.6	%		6,436		16.7	%		(324	)		(5.0	)%		(6,903)		23.0	%		(6,112)		15.6	%		(791)	(12.9)	%
Legal settlement award																		(1,890)		6.3	%		—		—			(1,890)	—
Total operating costs and expenses																		(34,159)		113.9	%		(37,794)		96.3	%		3,635	(9.6)	%
Operating (loss) income																		(4,156)		(13.9)	%		1,455		3.7	%		(5,611)	(385.6)	%

Employee retention credit (ERC)																		5,622		18.7	%		—		0.0	%		5,622	—
Paycheck Protection Program loan forgiveness																		4,000		13.3	%		—		0.0	%		4,000	—
Interest expense		134		0.3	%		88		0.2	%		46			52.3	%		(132)		(0.4)	%		(134)		(0.3)	%		2	1.5	%
Total costs and expenses		37,928		96.6	%		36,079		93.9	%		1,849			5.1	%
Income before income tax provision		1,321		3.4	%		2,353		6.1	%		(1,032	)		(43.9	)%

Total other income (expense)																		9,490		31.6	%		(134)		(0.3)	%		5,624	4,197.0	%

Income (loss) before income tax provision																		5,334		17.8	%		1,321		3.4	%		4,013	303.8	%

Income tax provision		240		0.6	%		409		1.1	%		(169	)		(41.3	)%		369		1.2	%		240		0.6	%		129	(53.8)	%
Net income	$	1,081		2.8	%	$	1,944		5.1	%	$	(863	)		(44.4	)%	$	4,965		16.5	%	$	1,081		2.8	%	$	3,884	359.3	%

($000's omitted except per share data)
Three Months Ended September 30, 2020 vs 2019
2020 2019 Dollar % Increase
Dollars % of Sales Dollars % of Sales Change (Decrease)
Revenues:
Advanced Technology $ 8,184 79.5 % $ 11,180 90.4 % $ (2,996 ) (26.8 )%
Consumer Products 2,113 20.5 % 1,182 9.6 % 931 78.8 %
10,297 100.0 % 12,362 100.0 % (2,065 ) (16.7 )%

Cost of goods sold, inclusive of depreciation and amortization 10,462 101.6 % 8,827 71.4 % 1,635 18.5 %
Gross margin (loss) (165 ) (2.6 )% 3,535 28.6 % (3,700 ) (104.7 )%

Selling, general and administrative 2,096 20.3 % 2,134 17.3 % (38 ) (1.8 )%
Interest expense 42 0.4 % 31 0.3 % 11 35.5 %
Total costs and expenses 12,600 122.4 % 10,992 88.9 % 1,608 14.6 %

(Loss) income before income tax provision (2,303 ) (21.4 )% 1,370 11.1 % (3,673 ) (268.1 )%

Income tax (benefit) provision (521 ) (5.1 )% 238 1.9 % (759 ) (318.9 )%
Net (loss) income $ (1,782 ) (17.3 )% $ 1,132 9.2 % $ (2,914 ) (257.4 )%

~~-21-~~

- 21 -


	($000’s omitted except per share data)
	Three Months Ended September 30,
	2021					2020					2021 vs 2020
				% of					% of		Dollar
	Dollars			Sales		Dollars			Sales		Change		% Variance
Revenues:
Advanced Technology Group	$	8,449		77.4	%	$	8,184		79.5	%	$	265	3.2	%
Consumer Products Group		2,466		22.6	%		2,113		20.5	%		353	16.7	%
		10,915		100.0	%		10,297		100.0	%		618	6.0	%

Cost of goods sold, inclusive of depreciation and amortization		(9,143)		83.8	%		(10,462)		101.6	%		1,319	12.6	%
Gross margin		1,772		16.2	%		(165)		(1.6)	%		1,937	1,173.9	%
Gross margin %		16.2	%				(1.6)	%

Selling, general and administrative		(2,721)		24.9	%		(2,096)		20.4	%		(625)	(29.8)	%
Legal settlement award		(1,890)		17.3	%		—		0.0	%		(1,890)	0.0	%
Total operating costs and expenses		(13,754)		126.0	%		(12,558)		122.0	%		(1,196)	(9.5)	%
Operating (loss)/income		(2,839)		26.0	%		(2,261)		22.0	%		(578)	25.6	%

Employee retention credit (ERC)		1,978		18.1	%		—		0.0	%		1,978	100.0	%
Paycheck Protection Program loan forgiveness		4,000		36.6	%		—		—			4,000	100.0	%
Interest expense		(5)		0.1	%		(42)		(0.4)	%		37	88.1	%
Total other income (expense)		5,973		54.7	%		(42)		(0.4)	%		2,015	4,797.6	%

Income before income tax provision		3,134		28.7	%		(2,303)		(22.4)	%		5,437	236.1	%

Income tax (benefit)/provision		(104)		(1.0)	%		(521)		(5.1)	%		417	(80.0)	%
Net income (loss)	$	3,238		29.7	%	$	(1,782)		(17.3)	%	$	5,020	281.7	%

Revenue

The Company’s consolidated revenues from operations ~~increased~~decreased approximately ~~$817,000~~$9,246,000 or ~~2.1%~~(23.6)% for the nine month period ended September 30, ~~2020~~2021 when compared to the same period in ~~2019. This is due to an increase at the CPG of approximately $1,515,000 or 33.6% and by a decrease at the ATG of approximately $698,000 or (2.1)%.~~

The increase in revenue is attributable to an increase in shipments at the CPG of approximately $1,419,000 and an increase in price/mix of units shipped of approximately $96,000. Additionally, there was an increase in price/mix of units shipped at the ATG of approximately $640,000 offset by a decrease in units shipped of approximately $1,338,000 for the nine month period ended September 30, 2020 when compared to the same period in 2019.

~~The Company’s consolidated revenues from operations decreased approximately $2,065,000 or (16.7)% for the three month period ended September 30, 2020 when compared to the same period in 2019.~~2020. This is due to a decrease at the ATG of approximately ~~$2,996,000~~$9,733,000 or ~~(26.8)~~(29.3)%, partially offset by an increase at the CPG of approximately ~~$931,000~~$487,000 or ~~78.8%~~8.1%.

The decrease in revenue is attributable to a decrease in shipments ~~and price/~~slightly offset by an improvement of product mix of shipments at the ATG of approximately ~~$1,719,000~~$10,620,000. This is partially offset by an increase in price of units shipped of approximately $887,000 at the ATG. Additionally, there was a decrease in shipments at the CPG offset by an improvement of product mix of shipments of approximately $240,000 and ~~$1,277,000, respectively as~~an increase in price of units shipped of approximately $247,000 for the nine month period ended September 30, 2021 when compared to the same period in 2020.

The Company’s consolidated revenues from operations increased approximately $618,000 or 6.0% for the three month period ended September 30, 2021 when compared to the same period in 2020. This is due to an increase at the ATG of approximately $265,000 or 3.2% and at the CPG of approximately $353,000 or 16.7%.

The consolidated increase for the three month period ended in September 30, 2021 when compared to the same three month period ended September 30, ~~2019.~~2020 is attributable to an increase in units shipped and improved product mix of shipments at the ATG of approximately $97,000 and an increase in price of the units shipped of approximately $168,000. Additionally, there was an increase in units shipped and improved product mix of shipments at the CPG of approximately ~~$949,000 partially offset by a decrease~~$203,000 and an increase in ~~price/mix~~price of units shipped of approximately ~~$18,000 for the three month period ended September 30, 2020 when~~$150,000 as compared to the same period ~~in 2019.~~ended September 30, 2020.

Gross Margin

The Company’s consolidated gross margins from operations decreased approximately ~~$1,310,000~~$2,930,000 or ~~(14.8)~~(38.7)% for the nine month period ended September 30, ~~2020~~2021 when compared to the same period in ~~2019.~~

2020. Gross margin decreased in the nine month period at the ATG and CPG approximately $2,452,000 and approximately $478,000, respectively.

- 22 -

Gross margin decreased in the nine month period primarily due to ~~lower~~the decrease in units shipped and increase in costs per units shipped, including underutilization of production resources at both the ATG and CPG. The gross margin decreased at the ATG, including improved mix of units shipped is approximately $2,452,000. The gross margin decreased at the CPG, including an improved mix of units shipped is approximately $478,000, as compared to the same period in 2020.

The Company’s consolidated gross margins from operations increased approximately $1,937,000 or 1,173.9% for the three month period ended September 30, 2021 when compared to the same period in 2020. Gross margin increased in the three month period at the ATG of approximately ~~$285,000 and an~~$2,138,000 offset by a decrease at the CPG of approximately $201,000.

Gross margin increased in the three month period primarily due to the increase in ~~the~~units shipped and improved costs per units shipped, including the underutilization of production resources at the ATG of approximately ~~$2,508,000~~$2,138,000. Gross margin decreased in the three month period primarily due increase of costs per unit shipped, including the underutilization of production resources partially offset by an increase in units shipped at the CPG of approximately $201,000, compared to the same period in 2020.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) increased approximately $2,681,000 or 43.9% for the nine month period ended September 30, 2021 when compared to the same period in 2020. SG&A expenses at the ATG increased approximately $2,529,000 or 52.1%. The increase is due to legal settlements of approximately $1,800,000, legal fees of approximately $895,000 and professional fees of approximately $513,000 offset by a decrease of employee wages and benefits approximately $553,000 and a net decrease of all other ATG SG&A expenses of approximately $126,000 as compared to the same period in ~~2019. This has been partially offset by an increase in gross margins~~2020. In addition, SG&A expenses at the CPG increased approximately $152,000 or 12.1%. The increase is due to ~~an increase in units shipped~~legal settlements of approximately ~~$351,000~~$90,000 and ~~a decrease in costs per units shipped including an improvement in utilization of production resources~~employee wages and benefits of approximately ~~$1,132,000~~$87,000 offset by a net decrease of all other CPG SG&A expenses of approximately $25,000 as compared to the same period in ~~2019.~~2020.

~~-22-~~

~~The Company’s consolidated gross margins from operations decreased~~Selling, general and administrative (SG&A) increased approximately ~~$3,700,000~~$2,515,000 or ~~(104.7)%~~120.0% for the three month period ended September 30, ~~2020~~2021 when compared to the same period in ~~2019.~~

~~During~~2020. SG&A expenses at the ~~three month period,~~ATG increased approximately $2,328,000 or 136.0% and the ~~Company had negative gross margin of~~CPG increased approximately ~~$165,000~~$187,000 or ~~(1.6)%~~48.7%. This is ~~primarily driven by~~attributable to the ~~gross margin decrease at~~increase of the ~~ATG due to lower units shipped~~combined legal settlements of approximately ~~$1,165,000, and an increase in the costs per units shipped including the underutilization of production resources and the weak absorption of manufacturing overhead~~$1,890,000, legal fees of approximately $3,089,000 as compared to the same period in 2019. This was primarily caused by the rescheduling of customer orders delayed to future periods due to the COVID-19 pandemic. The lower ATG production performance has been partially offset by an increase in gross margins at the CPG due to an increase in units shipped$748,000 and professional fees of approximately ~~$250,000 and a decrease in costs per units shipped including an improvement in utilization of production resources of approximately $304,000 as compared to the same period in 2019.~~

~~Selling, General and Administrative Expenses~~

~~Selling, general and administrative (SG&A) decreased approximately~~ ~~$324,000~~ ~~or (5.0)%~~ ~~for the nine month period ended September 30, 2020 when compared to the same period in 2019.~~ ~~This net decrease is driven by an increase of approximately $299,000 at the ATG~~$130,000 offset by a ~~decrease of~~reductions in employee wages and benefits approximately ~~$623,000 at the CPG. The ATG increase is driven by increased personnel costs~~$115,000 and ~~advertising expenses of approximately $643,000 partially offset by a reversal of~~ bad debt expense of approximately $159,000 versus a bad debt expense charge of approximately $185,000 that was recognized in the nine month period ending September 30, 2019. The CPG decrease is driven by lower media advertising, sales support, commissions travel, trade show and personnel costs of approximately $593,000 and a net decrease of approximately $30,000 in all other SG&A expenditures for the CPG for the nine month period ended September 30, 2020 compared to the same period in 2019.

Selling, general and administrative (SG&A) decreased approximately $38,000 or (1.8)% for the three month period ended September 30, 2020 when compared to the same period in 2019. The decrease is attributable to lower media advertising, travel, trade show and sales support and royalties of approximately $210,000 at the CPG offset by increases of pension and advertising expenses of approximately $184,000 at the ATG.$70,000. There was a net decrease of all other SG&A expenditures of approximately ~~$12,000~~$68,000 for the three month period ended September 30, ~~2020~~2021 compared to the same period in ~~2019.~~2020.

Other Income

The Company evaluated its eligibility for the ERC for the first three quarters of 2021. Under the aggregation rules of the Relief Act, the Company reviewed consolidated revenue when measuring the decline in gross receipts. All employees of the ATG and CPG are treated as a single employer for purposes of the ERC.

It was determined that the Company qualified for the ERC for both the three month period and nine month period ended September 30, 2021. As a result, for the nine month period ended September 30, 2021 the company recognized approximately $5,622,000 and for the three month period ended September 30, 2021 recognized approximately $1,978,000. The amounts were recorded in other income.

As previously discussed, 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.

Operating (Loss)/Income

Income from operations decreased approximately $5,611,000 or (385.6)% when comparing the nine month period ended September 30, 2021 to the same period in 2020 as operating income at the ATG was lower by approximately $4,981,000 and the CPG was lower by approximately $630,000. The consolidated decrease is primarily the result of decreases in revenue and increased SG&A expenditures, as discussed above.

Income from operations decreased approximately $578,000 or (25.6)% when comparing the three month period ended September 30, 2021 to the same period in 2020 as operating income at the ATG was lower by approximately $190,000 and the CPG was lower by approximately $388,000. The consolidated decrease is primarily the result of increases in selling, general and administrative expenses.

- 23 -

Interest Expense

Interest expense ~~increased~~decreased by ~~52.3%~~1.5% and ~~35.5%~~88.1% in the nine and three month periods ended September 30, ~~2020,~~2021, respectively, when compared to the same periods in ~~2019.~~2020. This is primarily due to the ~~higher~~lower debt balances and the reversal of the accrued interest ~~rates on~~for the ~~bank loans and a full year of interest paid on the equipment financing lease obligations.~~

PPP loan that was forgiven during this reporting quarter.

Income Taxes

The Company’s effective tax rate was approximately ~~18.2%~~6.9% and ~~17.4%~~18.2% for the nine month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company’s effective tax rate was approximately ~~(22.6)~~(3.3)% and ~~17.4%~~(22.6)% for the three month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The effective tax rate in both years reflects federal and state income taxes, permanent non-deductible expenditures, the deduction for foreign-derived intangible income and the federal tax credit for research and development expenditures.

~~-23-~~

In addition, the effective tax rate at September 30, 2021 reflects the permanent deduction for the forgiveness of the PPP loan.

Net Income

Net income for the nine month period ended September 30, ~~2020 decreased~~2021 increased approximately ~~$863,000~~$3,884,000 or ~~(44.4)%~~359.3%. This ~~decrease~~increase is primarily due to income of $4,000,000 recognized from the ~~result~~PPP loan forgiveness and the $5,334,000 ERC benefit described in Note 10. Both of these items were recognized in “Other income/(expense)” in our condensed consolidated statement of operations for the three month period ended September 30, 2021. This income was partially offset by the decreases in gross margin related to lower volume at the ATG ~~partially offset by gross margin~~and increases ~~at the CPG business segment and decreases~~ in ~~selling, general and administrative~~SG&A expenses, ~~at the CPG business segments.~~as discussed above. Net income for the three month period ended September 30, ~~2020 decreased~~2021 increased approximately ~~$2,914,000 or (257.4)%~~$5,020,000 when compared to the same period in ~~2019.~~2020. This ~~decrease~~increase is primarily the result of ~~decreases in gross margin~~the PPP loan forgiveness and ~~increases in selling, general and administrative expenses at the ATG business segments partially~~ERC benefit, as discussed, offset by increases in ~~gross margin and decreases in selling, general and administrative~~SG&A expenses, ~~at the CPG business segment.~~

as discussed above.

Liquidity and Capital Resources

The Company’s primary liquidity and capital expenditure requirements relate to working capital ~~needs;~~needs: primarily inventory, accounts receivable, accounts payable, and principal payments on debt. At September 30, ~~2020,~~2021, the Company had working capital of approximately ~~$33,677,000~~$34,636,000 ($~~27,659,000~~31,074,000 – December ~~2019)~~2020) of which approximately ~~$7,468,000~~$11,826,000 ($~~2,029,000~~5,935,000 – December ~~2019)~~2020) was comprised of cash. The increase in working capital is primarily attributable to an increase in ~~inventory~~cash, accounts receivable, accrued expenses and accrued employee compensation with a decrease ofin inventory and accounts ~~payable at the ATG offset by a reduction in accounts receivable at the ATG due to lower shipments.~~payable. The push out of orders related to the COVID-19 pandemic has contributed to a ~~build-up~~higher levels of ~~finished goods and other~~ inventories at the ATG during the nine months ended September 30, ~~2020.~~2021. 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 Company generated approximately ~~$2,127,000~~$6,338,000 in cash from operations during the nine month period ended September 30, ~~2020~~2021 as compared to ~~a usage of cash of~~ approximately ~~$245,000~~$2,126,000 generated during the same period in ~~2019.~~2020. Cash was generated primarily through net income of approximately ~~$1,081,000,~~$4,965,000, the increase in accrued employee compensation and other accrued liabilities of approximately $3,174,000 and a reduction in inventories of approximately $2,861,000 offset by adjustments to reconcile net income to net cash of approximately ~~$1,283,000~~$2,959,000, and a reduction in accounts receivable of approximately $6,564,000. The primary use of cash for the Company’s operating activities for the nine month period ended September 30, 2020 include working capital requirements, mainly an increase in inventories and a decrease in accounts payable of approximately $5,242,000 and $1,213,000, respectively.$1,509,000. All other operating accounts were a net used amount of approximately ~~$346,000.~~

$194,000.

The Company’s primary use of cash in its investing activities in the nine month period ended September 30, ~~2020~~2021 are for ~~building improvements and~~ capital equipment of approximately ~~$640,000~~$68,000 primarily for ~~production requirements at the ATG. All other capital~~machinery, equipment, ~~expenditures of approximately $68,000 were for production requirements at the CPG.~~

and tooling.

The Company’s primary ~~providing~~usage of cash in its financing activities in the nine month period ended September 30, ~~2020~~2021 include principal payments on long-term debt and equipment note obligations of approximately $911,000 and $271,000, respectively partially offset by proceeds from the line of credit and ~~PPP Loan~~equipment financing of approximately ~~$750,000~~$500,000 and ~~$4,000,000, respectively, partially offset by approximately $410,000~~$384,000, respectively. In addition, there was a usage of ~~principal payments on long-term debt, approximately $220,000 of principal payments on equipment financing obligations and approximately $100,000~~$81,000 for the withheld/purchase of treasury ~~shares.~~

shares to satisfy statutory minimum withholding tax requirements.

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.

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 to expire December 31, 2022. As of July 31, 2020, the interest rate is a rate per year equal

- 24 -

to the bank’s prime rate or Libor plus ~~1.65%~~2.15%. In addition, the Company is required to pay a commitment fee of 0.25% on the unused portion of the line of credit. There was ~~$3,750,000~~$4,250,000 balance outstanding at September 30, ~~2020~~2021 and ~~$3,000,000~~$3,750,000 balance at December 31, ~~2019.~~

~~-24-~~

2020.

The Company ~~has~~had an equipment loan facility in the amount of $1,000,000 available until July 9, 2021. This line is 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 nothing~~was approximately $765,000 outstanding as of September 30, ~~2020~~2021 and $523,000 at December 31, ~~2019.~~

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 ~~is being~~was made through the Bank of America, NA (the “Lender”). The term of the PPP Loan iswas two years with an annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan ~~will be~~were deferred ~~for~~until the ~~first six months~~SBA remits the loan forgiveness amount to the lender. The Company used approximately 60% of the ~~loan term. Payments on any unforgiven amounts will begin on the date on which loan forgiveness is determined or 10 months after the end~~amount of the borrower’s covered period if forgiveness is not requested. Commencing one month after the expiration of the deferral period, the Company is required to pay the Lender the principal amount outstanding on the PPP Loan ~~in equal monthly payments of principal and interest.~~

At the time of application, the Company determined that the loan was necessary in order to secure the Company’s ability to meet its obligations in the face of potential disruptions in its business operations and the potential inability of its customersproceeds to pay ~~their accounts when due. As of September 30, 2020, the Company incurred~~for payroll costs and the balance on other eligible qualifying expenses ~~that the Company believes to be~~ consistent with the terms of the PPP ~~Loan. No assurance can be given that we will obtain~~and submitted its forgiveness application to the Lender during the third quarter of 2021. During the ~~PPP Loan~~third quarter, the entire loan was forgiven by the SBA and a gain of $4,000,000 was recorded in ~~whole or~~“Other income (expense)” in ~~part.~~

the Company’s condensed consolidated statements of operations.

The Company believes its cash generating capability and financial condition, together with available credit facilities will be adequate to meet our future operating, investing and financing needs.

~~Item 3.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

~~Item 4.~~

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company carried out an evaluation under the supervision and with the participation of its management, including the Company’s ~~Chief~~Principal Executive Officer (“~~CEO”~~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 September 30, ~~2020.~~2021. Based upon that evaluation, the ~~CEO~~PEO and CFO concluded that the Company’s disclosure controls and procedures ~~are~~were not effective to ensure that the information required to be disclosed by the Company in SEC reports under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicateddue to the material weakness in the Company’s ~~management, including~~internal control over financial reporting reported in the ~~CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.~~

~~-25-~~

Company’s amended Annual Report on Form 10-K for the year ended December 31, 2020.

Changes in Internal Controls

~~During~~As reported in the ~~nine month period~~Company’s amended Annual Report on Form 10-K for the year ended ~~September 30,~~December 31, 2020, management identified a material weakness in the Company’s internal control over financial reporting relating to the failure to monitor whether the components of internal control are present and functioning in accordance with the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (“COSO”). The Company has begun its remediation process which includes the development of enhanced internal control review procedures and documentation standards aligned with the COSO components and principles, however, there ~~were~~have not been sufficient opportunities to conclude that the enhanced procedures and documentation is operating effectively. Except for the implementation of the remediation plan, there have been no changes induring the period covered by this report to the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to affect, the Company’s internal controls over financial reporting.

- 25 -

PART II

OTHER INFORMATION

~~Item 1.~~

Item 1. Legal Proceedings

Except as set forth in Note 8, Litigation. Additionally, the Company is subject to various claims and litigation arising in the normal course of business. In the opinion of management, such pending legal matters are either adequately covered by insurance or, if not insured, are not expected to materially adversely affect the business or earnings of the Company. The Company maintains insurance to cover liabilities in excess of certain self-insured retention levels. While the Company believes its insurance coverage is adequate, future claims could exceed existing insurance coverage or insurance may not continue to be available at commercially reasonable rates.

~~Item~~

Item 1A. Risk Factors

Not applicable.

~~Item 2.~~

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

(c) Company Purchases of Company’s Equity Securities

2020 Periods	Total Number of Shares Purchased				Weighted Average Price $ Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares that may yet be Purchased under the Plans or Programs (1)

															Total Number of Shares	Maximum Number of Shares
															Purchased as Part of Publicly	that may yet be Purchased
											Total Number of Shares		Weighted Average Price $		Announced Plans or Programs	under the Plans or Programs
2021 Periods											Purchased		Paid Per Share		(1)	(1)
January - March		9,903	(2	)	$	10.07		360		89,385	9,903	(2)	$	10.07	360	89,385
April - June		-				-		-		89,385	—			—	—	89,385
July		-				-		-		89,385	—			—	—	89,385
August		-				-		-		89,385	—			—	—	89,385
September		-				-		-		89,385	—			—	—	89,385
Total		9,903			$	10.07		360		89,385	9,903		$	10.07	360	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 September 30, 2021, the Company has purchased 360,615 shares and there remains 89,385 shares available to purchase under this program. There were 360 shares purchased by the Company during the nine month period ended September 30, 2021.

(2)	Includes 9,903 shares withheld/purchased by the Company in January 1, 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.

(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 September 30, 2020, the Company has purchased 360,615 shares and there remains 89,385 shares available to purchase under this program. There were 360 shares purchased by the Company during the nine month period ended September 30, 2020.

(2) Includes 9,543 shares withheld/purchased by the Company in January 1, 2020 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.

~~Item 3.~~

Item 3. Defaults Upon Senior Securities

Not applicable.

~~-26-~~

~~Item 4.~~

Item 4. Mine Safety Disclosures

Not applicable.

~~Item 5.~~

Item 5. Other Information

Not applicable.

- 26 -

~~Item 6.~~

Item 6. Exhibits

	~~31.1~~
31.1		Certification of ~~Chief~~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

~~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

~~32.1~~

Certification of ~~Chief~~Principle Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

32.2

~~32.2~~

Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

101

~~101~~

The following materials from Servotronics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2020,~~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.

FORWARD-LOOKING STATEMENTS

In addition to historical information, certain sections of this Form 10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as those pertaining to the Company’s capital resources and profitability, the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of businesses’ and governments’ responses to the pandemic on the Company’s operations and personnel, and on commercial activity and demand across the Company’s and its customers’ businesses, and on global supply chains; and the Company’s inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to adversely impact our business operations. Forward-looking statements involve numerous risks and uncertainties. The Company derives a material portion of its revenues from contracts with agencies of the U.S. Government or their prime contractors. The Company’s business is performed under fixed price contracts and the following factors, among others discussed herein, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: uncertainties in today’s global economy and global competition, and difficulty in predicting defense 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, and market demand and acceptance both for the Company’s products and its customers’ products which incorporate Company-made components. The success of the Company also depends upon the trends of the economy, including interest rates, income tax laws, governmental regulation, legislation, population changes and those risk factors discussed elsewhere in this Form 10-Q. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s analysis only as of the date hereof. The Company assumes no obligation to update forward-looking statements.

~~-27-~~

- 27 -

SIGNATURES

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

Date: November ~~13, 2020~~15, 2021

SERVOTRONICS, INC.

~~By:~~	~~/s/ Kenneth D. Trbovich, Chief Executive Officer~~
		~~Kenneth D. Trbovich~~
By:	~~Chief~~ /s/ James C. Takacs, Principal Executive Officer

	James C. Takacs
	~~By:~~	Principal Executive Officer

	By:	/s/ Lisa F. Bencel, Chief Financial Officer
		Lisa F. Bencel
		Chief Financial Officer

~~-28-~~ - 28 -

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

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

~~Class~~
Class		Outstanding at October ~~26, 2020~~18, 2021
Common Stock, $.20 par value		~~2,488,427~~ 2,491,667

		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):

	a) Condensed Consolidated Balance Sheets, ~~September30,~~September 30, 2021 and December 31, 2020 ~~and December31, 2019~~ (Audited)		3

	b) Condensed Consolidated Statements of Operations for the three and nine months ended ~~September30,~~September 30, 2021 and 2020 ~~and 2019~~		4

	c) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020	5

	d) Condensed Consolidated Statement of Cash Flows for the nine months ended ~~September30,~~September 30, 2021 and 2020 ~~and 2019~~		5 6

	d)e) Notes to Condensed Consolidated Financial ~~Statements~~Statement		6 7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25

Item 4.	Controls and Procedures		25

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		26

Item 1A.	Risk Factors		26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26

Item 3.	Defaults Upon Senior Securities		26

Item 4.	Mine Safety Disclosures		27 26

Item 5.	Other Information		27 26

Item 6.	Exhibits		27

Forward-Looking Statements			27

Signatures			28

	September 30,			December 31,
	2020			2019
	(Unaudited)			(Audited)
Current assets:
Cash	$	7,468		$	2,029
Accounts receivable, net		6,769			13,183
Inventories, net		25,153			20,151
Prepaid income taxes		768			416
Other current assets		670			522
Total current assets		40,828			36,301

Property, plant and equipment, net		12,360			12,717

Deferred income taxes		107			107

Other non-current assets		337			345

Total Assets	$	53,632		$	49,470

Liabilities and Shareholders' Equity

Current liabilities:
Current portion of long-term debt	$	548		$	548
Current portion of equipment financing lease obligations		301			301
Dividend payable		16			17
Accounts payable		3,245			4,458
Accrued employee compensation and benefits costs		2,289			2,283
Other accrued liabilities		752			1,035
Total current liabilities		7,151			8,642

Long-term debt		9,290			5,170

Post retirement obligation		2,423			2,126

Shareholders' equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,614,506 shares; outstanding 2,401,001 (2,399,576 - 2019) shares		523			523
Capital in excess of par value		14,459			14,358
Retained earnings		21,565			20,484
Accumulated other comprehensive income		98			98
Employee stock ownership trust commitment		(460	)		(460	)
Treasury stock, at cost 126,079 (127,504 - 2019) shares		(1,417	)		(1,471	)
Total shareholders' equity		34,768			33,532

Total Liabilities and Shareholders' Equity	$	53,632		$	49,470

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2020			2019		2020		2019
Revenue	$	10,297		$	12,362	$	39,249	$	38,432

Costs of goods sold, inclusive of depreciation and amortization		10,462			8,827		31,682		29,555
Gross margin (loss) income		(165	)		3,535		7,567		8,877

Operating Expenses:
Selling, general and administrative		2,096			2,134		6,112		6,436
Interest expense		42			31		134		88

Total operating expenses		2,138			2,165		6,246		6,524

(Loss) income before income tax provision		(2,303	)		1,370		1,321		2,353

Income tax (benefit) provision		(521	)		238		240		409

Net (loss) income	$	(1,782	)	$	1,132	$	1,081	$	1,944

Income per share:
Basic
Net (loss) income per share	$	(0.75	)	$	0.49	$	0.46	$	0.84

Diluted
Net (loss) income per share	$	(0.75	)	$	0.47	$	0.45	$	0.82

			September 30,				December 31,
	Year		2020				2019
			($000's omitted)
		2020	$	83		$	331
		2021		331			331
		2022		316			316
		2023		169			169
		2024		97			97
Total principal and interest payments				996			1,244
Less amount representing interest				(78	)		(106)
Present value of net minimum lease payments				918			1,138
Less current portion				(301	)		(301)
Long term principle payments			$	617			$837

	($000's omitted except per share data)
	Three Months Ended September 30,											2020 vs 2019
	2020						2019					Dollar			% Increase
	Dollars			% of Sales			Dollars		% of Sales			Change			(Decrease)
Revenues:
Advanced Technology	$	8,184			79.5	%	$	11,180		90.4	%	$	(2,996	)		(26.8	)%
Consumer Products		2,113			20.5	%		1,182		9.6	%		931			78.8	%
		10,297			100.0	%		12,362		100.0	%		(2,065	)		(16.7	)%

Cost of goods sold, inclusive of depreciation and amortization		10,462			101.6	%		8,827		71.4	%		1,635			18.5	%
Gross margin (loss)		(165	)		(2.6	)%		3,535		28.6	%		(3,700	)		(104.7	)%

Selling, general and administrative		2,096			20.3	%		2,134		17.3	%		(38	)		(1.8	)%
Interest expense		42			0.4	%		31		0.3	%		11			35.5	%
Total costs and expenses		12,600			122.4	%		10,992		88.9	%		1,608			14.6	%

(Loss) income before income tax provision		(2,303	)		(21.4	)%		1,370		11.1	%		(3,673	)		(268.1	)%

Income tax (benefit) provision		(521	)		(5.1	)%		238		1.9	%		(759	)		(318.9	)%
Net (loss) income	$	(1,782	)		(17.3	)%	$	1,132		9.2	%	$	(2,914	)		(257.4	)%