Group 1 - TransDigm Group has successfully completed the acquisition of Servotronics, with a tender offer price of $47.00 per share in cash [1][2][3] - A total of 2,228,197 shares of Servotronics' common stock were validly tendered, representing approximately 87.09% of outstanding shares [2] - The merger was completed without a vote from Servotronics' stockholders, as TransDigm acquired a sufficient number of shares [3] Group 2 - Outstanding shares of Servotronics that were not tendered will be converted into the right to receive the tender offer price [4] - Servotronics' common stock will cease trading on NYSE American, and a notice of delisting is expected to be filed [4] Group 3 - TransDigm Group is a leading global designer and supplier of highly engineered aircraft components for commercial and military aircraft [6] - Major product offerings include mechanical/electro-mechanical actuators, ignition systems, specialized pumps, and various aerospace components [6] Group 4 - Servotronics designs and manufactures servo controls and components for commercial and government applications, including aerospace [7]

Core Viewpoint - Star Equity Fund's advocacy led to Servotronics agreeing to be acquired by TransDigm at a significant premium, creating substantial value for shareholders [1][2]. Group 1: Transaction Details - TransDigm will acquire all outstanding shares of Servotronics at $47.00 per share in an all-cash transaction, representing a 357% premium over the closing price on May 16, 2025 [1]. - The transaction was a result of a strategic review initiated by Servotronics' Board, influenced by Star Equity Fund's sustained pressure and advocacy [2]. Group 2: Shareholder Advocacy - Star Equity Fund's campaign included director nominations and various communications with the Board, which led to shareholder-friendly actions that may not have occurred otherwise [2]. - The advocacy highlighted that Servotronics' shares were undervalued and that its intrinsic value was higher than its trading price as a standalone public company [2]. Group 3: Stakeholder Benefits - The acquisition by TransDigm is expected to benefit all stakeholders of Servotronics, including employees and customers, according to the Portfolio Manager of Star Equity Fund [3]. - The efforts of significant shareholders and directors contributed to achieving this favorable outcome for all shareholders, including the Company's Employee Stock Ownership Plan (ESOP) [3]. Group 4: Company Background - Star Equity Fund, LP is focused on unlocking shareholder value through engagement with management teams across its portfolio companies [4]. - Star Equity Holdings, Inc. operates in three business divisions: Building Solutions, Energy Services, and Investments [5].

Core Viewpoint - TransDigm Group Incorporated has announced a definitive merger agreement to acquire Servotronics, Inc., which will become an indirect wholly owned subsidiary of TransDigm, enhancing its portfolio in the aerospace and defense sectors [1][2]. Group 1: Merger Agreement Details - TransDigm will commence a tender offer to acquire all outstanding shares of Servotronics for $38.50 per share in cash, valuing the transaction at approximately $110 million [2][3]. - The cash consideration represents a premium of approximately 274% to Servotronics' closing share price on May 16, 2025 [2]. - The acquisition will be funded with TransDigm's cash on hand and is not subject to any financing conditions [3]. Group 2: Company Profiles - Servotronics is a leading global designer and manufacturer of servo controls and advanced technology components for aerospace and defense applications, generating approximately $45 million in revenue for its fiscal year ended December 31, 2024 [4]. - Servotronics' products have a strong presence across major aerospace and defense platforms, with nearly all revenue derived from proprietary products [4]. - TransDigm is a leading global designer, producer, and supplier of highly engineered aircraft components for commercial and military aircraft, with a diverse range of product offerings [7][8]. Group 3: Strategic Fit and Future Outlook - TransDigm's President and CEO expressed excitement about the acquisition, highlighting Servotronics' proprietary products and significant aftermarket exposure as a good fit with TransDigm's long-standing strategy [5]. - Servotronics' CEO noted that being part of a larger aerospace company will provide growth opportunities and resources for continued product development [5]. - The merger agreement anticipates that TransDigm will commence the cash tender offer for all outstanding shares of Servotronics on or before June 9, 2025 [5].

Core Viewpoint - Servotronics, Inc. has shown a positive turnaround in revenue and earnings for Q1 2025, although its stock performance has lagged behind the S&P 500 index during the same period [1][2]. Financial Performance - Revenues for Q1 2025 reached $11.7 million, marking a 12% increase from $10.4 million in Q1 2024, driven by higher sales volumes and improved pricing [2]. - Gross profit increased by 36% to $2.4 million, resulting in a gross margin improvement to 20.2% from 16.6% year-over-year [2]. - Operating income turned positive at $0.2 million, reversing from a loss of $0.3 million in the prior year [3]. - Net income from continuing operations was $0.1 million, or $0.06 per diluted share, compared to a net loss of $0.4 million, or ($0.15) per diluted share, in Q1 2024 [3]. Key Business Metrics - Adjusted EBITDA on a non-GAAP basis was $0.5 million, a significant improvement from a negative $12,000 in the prior-year period [4]. - Operating cash flow turned negative at ($1.6) million, down from $0.4 million in the same period last year, primarily due to a $2.1 million increase in accounts receivable [4]. - Capital expenditure decreased to $69,000 from $152,000, while financing activities generated $1.6 million in cash from increased borrowing on the company's $7 million asset-based credit facility [5]. Management Insights - CEO William F. Farrell, Jr. highlighted the benefits from rebounding industry demand, particularly in commercial and military aerospace, and noted significant improvements in operating income due to process enhancements [6]. - CFO Robert A. Fraass mentioned revised pricing agreements with key customers, expected to support margin expansion in 2025 and accelerate in 2026 [7]. Revenue Drivers - Revenue growth was attributed to a 12% year-over-year increase, with approximately $763,000 from higher unit volumes and $451,000 from pricing enhancements, partially offset by a $32,000 negative impact from product mix [8]. Expense Trends - Selling, general and administrative expenses rose 5% year-over-year to $2.1 million, largely due to legal and professional fees related to strategic alternatives [9]. - Interest and other expenses increased by 16.9% year-over-year to $97,000, driven by higher usage of the credit facility [9]. Future Outlook - Management expressed optimism for the remainder of 2025, supported by strong demand trends in both commercial and defense sectors, and is pursuing margin-accretive projects [10]. Strategic Developments - Servotronics initiated a formal review of strategic alternatives and engaged an investment bank for assistance, with initial discussions with potential partners yielding positive responses [11]. - Operations related to the previously divested Ontario Knife Company remain classified as discontinued, with minimal residual losses of $17,000 for the quarter [12].

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited financial statements show a significant turnaround, with a return to profitability driven by revenue growth [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities increased, driven by higher accounts receivable and greater use of the line of credit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $29,629 | $27,779 | | Accounts receivable, net | $11,362 | $9,288 | | Inventories, net | $15,488 | $15,826 | | **Total Assets** | **$36,708** | **$34,832** | | **Total Current Liabilities** | $8,551 | $6,855 | | Line of credit | $3,725 | $2,127 | | **Total Liabilities** | **$13,013** | **$11,328** | | **Total Shareholders' Equity** | **$23,695** | **$23,504** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company achieved a significant operational turnaround with a 12% revenue increase and a return to net income Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenue | $11,703 | $10,446 | | Gross Profit | $2,360 | $1,735 | | Operating Income (Loss) | $242 | ($283) | | Net Income (Loss) | $128 | ($383) | | Basic and Diluted EPS | $0.05 | ($0.16) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Total comprehensive income improved significantly, driven by the shift from a net loss to a net income Q1 Comprehensive Income (Loss) (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Income (Loss) | $128 | ($383) | | Other Comprehensive Income | $17 | $19 | | **Total Comprehensive Income (Loss)** | **$145** | **($364)** | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations turned negative due to a substantial increase in accounts receivable Q1 Cash Flow Summary (in thousands) | Cash Flow Category | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash (Used) Provided by Operating Activities | ($1,589) | $413 | | Net Cash Used by Investing Activities | ($52) | ($152) | | Net Cash Provided (Used) by Financing Activities | $1,598 | ($94) | | **Net (Decrease) Increase in Cash** | **($74)** | **$41** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes highlight the OKC discontinued operation, significant customer concentration, a pending lawsuit, and credit facility details - The sale of assets from The Ontario Knife Company (OKC) closed on August 1, 2023, and its results are now reported as a discontinued operation[19](index=19&type=chunk)[55](index=55&type=chunk) - The company has significant customer concentration, with four customers collectively accounting for approximately **84% of revenues** in Q1 2025[89](index=89&type=chunk) - The company is defending against a lawsuit from an employee seeking damages of at least **$5 million**, though management does not consider the risk of loss to be probable[87](index=87&type=chunk) - The company has a **$7 million** asset-based line of credit and was in compliance with its covenants as of March 31, 2025[64](index=64&type=chunk)[66](index=66&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the drivers of improved performance, including revenue growth and margin expansion, and its liquidity position [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Revenue grew 12% due to price and volume increases, leading to a 36% rise in gross profit and a return to operating income Q1 2025 vs Q1 2024 Performance Comparison (in thousands) | Metric | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $11,703 | $10,446 | $1,257 | 12.0% | | Gross Profit | $2,360 | $1,735 | $625 | 36.0% | | *Gross Margin* | *20.2%* | *16.6%* | - | - | | Operating Income (Loss) | $242 | ($283) | $525 | 185.5% | - Revenue growth was driven by price increases of approximately **$451,000** and volume increases of approximately **$763,000**[104](index=104&type=chunk) - The increase in SG&A was primarily due to higher professional and legal fees related to the review of strategic alternatives[108](index=108&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by its credit facility, which was used to fund a working capital deficit from higher receivables Key Liquidity Data (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | ($1,589) | $413 | | Net Cash from Financing Activities | $1,598 | ($94) | | Working Capital | $21,078 | $21,481 | - The use of cash from operations in Q1 2025 was primarily due to an **increase in accounts receivable**[116](index=116&type=chunk) - Primary sources of liquidity are cash from operations and the **$7 million** credit facility, which had approximately **$3 million** of additional funding capability[120](index=120&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from this disclosure requirement as a smaller reporting company - As a smaller reporting company, Servotronics is not required to provide quantitative and qualitative disclosures about market risk[131](index=131&type=chunk) [Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of March 31, 2025[132](index=132&type=chunk) - **No material changes** were made to the company's internal controls over financial reporting during the first quarter of 2025[133](index=133&type=chunk) [PART II. OTHER INFORMATION](index=31&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings beyond those disclosed in the financial statement notes - The company refers to Note 9 for details on legal proceedings and states there are **no other material proceedings pending**[135](index=135&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Servotronics is not required to provide this information - The company is a smaller reporting company and is **not required to provide risk factor disclosures** in its Form 10-Q[136](index=136&type=chunk) [Other Information](index=31&type=section&id=Item%205.%20Other%20Information) No directors or Section 16 officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter - **No directors or Section 16 officers** adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter[139](index=139&type=chunk) [Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists the required CEO/CFO certifications and XBRL data files filed as exhibits - The report includes required certifications from the CEO and CFO, as well as XBRL interactive data files as exhibits[140](index=140&type=chunk)

Sends Letter to Servotronics, Inc. Shareholders Highlighting Material UnderperformanceOn May 2, 2025, Beaver Hollow Wellness issued the following press release and letter:Beaver Hollow Wellness Files Definitive Proxy Statement and Sends Letter to Servotronics, Inc. Shareholders Highlighting Material Underperformance, Misguided Capital Allocation Strategy and Loss of Shareholder ValueNominates Four Highly Qualified Director Nominees – Paul L. Snyder III, Christine R. Marlow, Michael W. Dolpp and Charles C. A ...

Core Viewpoint - Beaver Hollow Wellness, LLC (BHW) criticizes Servotronics, Inc.'s board for prioritizing executive compensation over shareholder value, indicating a disconnect between the board and shareholders [1][2]. Group 1: Board Actions and Shareholder Concerns - The board's newly inserted "change of control" provisions are seen as a self-serving tactic to protect executive payouts, which BHW argues is an inappropriate use of shareholder concerns [2]. - BHW emphasizes that the board has focused on granting excessive "Golden Parachutes" to executives, contrasting this with BHW's commitment to rebuilding the company through responsible practices [3]. Group 2: BHW's Commitment and Strategy - BHW aims to implement lean manufacturing principles, improve supply chain operations, and ensure high-quality deliverables, all while prioritizing shareholder interests and operational excellence [4]. - BHW encourages shareholders to reject the board's fear tactics and support their nominees, promoting a plan for real change within Servotronics [5]. Group 3: Nominees for Board Positions - BHW has nominated four individuals with diverse expertise in aerospace, finance, manufacturing, and governance to enhance the board's effectiveness [6].

Core Viewpoint - Star Equity Fund has been advocating for Servotronics, Inc. to explore strategic alternatives since 2022, leading to the recent announcement of a strategic review by the Company's Board of Directors [1][4]. Group 1: Advocacy and Changes - Star Equity Fund has consistently urged Servotronics' Board to improve corporate governance and maximize shareholder value, emphasizing the need for a change in Board composition due to past poor performance [2][3]. - The Fund's campaign has resulted in several shareholder-friendly actions, including the addition of new independent directors and the resignation of non-qualified directors, as well as the termination of a poison pill strategy [3][4]. - The divestiture of the non-core Consumer Products division in August 2023 was also a result of the Fund's advocacy, alongside calls for a strategic review of all assets [3]. Group 2: Future Expectations - While the initiation of a strategic review is seen as a positive step, there is an expectation for real progress to be made in the coming months, with a focus on maximizing shareholder value [5]. - The intrinsic value of Servotronics is believed to be significantly higher than its current stock price, indicating that the shares are undervalued [5]. - The Fund remains committed to monitoring the situation and aims for Servotronics to become a well-regarded company benefiting all stakeholders [6].

Revenue Performance - Revenues for Q4 2024 were $9.8 million, down 20.8% from $12.3 million in Q4 2023, with units shipped decreasing by 22.0%[3] - Full-year 2024 revenues increased by 3.0% to $44.9 million, up from $43.6 million in 2023, driven by price increases and higher volumes[5] - Total revenue for 2024 increased to $44,917,000 from $43,629,000 in 2023, representing a growth of 2.95%[19] Profitability - Gross profit in Q4 2024 declined to $1.2 million, or 12.3% of revenue, compared to $2.8 million, or 22.4% of revenue in Q4 2023[3] - Consolidated gross profit for 2024 was $8.3 million, or 18.4% of revenue, compared to $7.8 million, or 17.9% for 2023[5] - Gross profit rose to $8,266,000 in 2024, compared to $7,805,000 in 2023, marking an increase of 5.91%[19] - Adjusted EBITDA for 2024 increased significantly to a profit of $0.7 million, reflecting operational improvements[6] Operating Loss and Expenses - Operating loss for Q4 2024 was ($1.1) million, a significant decline from operating income of $0.5 million in Q4 2023[3] - Operating expenses decreased to $9.3 million, or 20.6% of sales in 2024, down from $9.9 million, or 22.7% in 2023[5] - Operating loss improved to $1,009,000 in 2024 from $2,113,000 in 2023, a decrease of 52.3%[19] Net Loss and Earnings Per Share - Loss from continuing operations for 2024 was ($1.5) million, or ($0.60) per diluted share, compared to a loss of ($3.5) million, or ($1.44) per diluted share in 2023[5] - Net loss for 2024 decreased significantly to $1,623,000 from $10,787,000 in 2023, reflecting an improvement of 85%[19] - The company reported a basic and diluted loss per share of $0.64 for 2024, down from $4.37 in 2023, a reduction of 85.3%[19] Cash Flow and Assets - Cash provided by operating activities was $1.3 million for 2024, compared to a use of ($3.8) million for 2023, driven by lower net loss and improved cash collections[6] - Cash and restricted cash at the end of 2024 was $261,000, up from $245,000 in 2023, indicating a net increase of $16,000[20] - Total current assets decreased to $27,779,000 in 2024 from $29,567,000 in 2023, a decline of 6.05%[18] - Total assets decreased to $34,832,000 in 2024 from $36,587,000 in 2023, a decline of 4.8%[18] Liabilities and Financial Position - Total liabilities decreased to $11,328,000 in 2024 from $12,093,000 in 2023, a reduction of 6.31%[18] - The company is well positioned for growth in 2025, with expectations of profitable growth as aircraft deliveries resume[2] - Accounts receivable decreased to $9,288,000 in 2024 from $12,065,000 in 2023, a decline of 23.0%[18]

Business Operations - Servotronics divested its Consumer Products Group (CPG) segment in 2023, now operating solely under the Advanced Technology Group (ATG) for its servo-control business[13] - Servotronics holds long-term contracts with prime defense contractors, with less than 1% of contracts historically terminated for convenience[17] - The company is focusing on a rebranding initiative to better align with market demands in aerospace and defense sectors, targeting expansion into aftermarket and industrial markets[15] - The company emphasizes the importance of intellectual property as a competitive advantage, encompassing trademarks, copyrights, and trade secrets[20] - Servotronics aims to strengthen its market position through customized solutions, competing on product quality and timely delivery[18] Employee Engagement - The company reported an employee retention improvement from 60% in 2022 to nearly 90% in 2024, reflecting enhanced employee engagement strategies[24] - As of December 31, 2024, Servotronics employed 262 individuals, with 88% actively contributing to production and engineering tasks[23] - The ability to attract and retain key executives and employees is critical for the company's future success[27] Research and Development - Significant investments in research and development are ongoing to drive innovation and long-term growth[21] - The company is focused on the introduction of new technologies and the impact of competitive products on market acceptance[27] Risk Management - The company is actively managing supplier risks, as the loss of a significant supplier could materially affect operations[19] - Forward-looking statements indicate potential risks including global economic uncertainties and concentration of revenue among a small number of customers[27] - The company acknowledges numerous risks and uncertainties that may affect future operations, including political risks and changes in legal and regulatory environments[27] - The concentration of revenue among a relatively small number of customers poses a risk to the company's financial stability[27] - The company highlights potential disruptions in the global supply chain and labor markets as significant challenges[27] - The company is aware of the potential impact of pending and potential litigation on its operations[27] - The availability of financing and fluctuations in interest rates are factors that could influence the company's financial performance[27] Growth Strategy - The company emphasizes the importance of sustaining and managing growth while aligning capacity with demand[27] - The company plans to monitor the demand for new or existing aircraft that incorporate its products[27]