Revenue Growth - Revenue for the three-month period ended September 30, 2023, increased by approximately $2,759,000, or 31%, compared to the same period in 2022, driven by a 29% increase in units shipped [108]. - Revenue for the nine-month period ended September 30, 2023, increased by $4,552,000, or 17%, compared to the same period in 2022, with units shipped increasing by 16% [108]. - The company expects continued sequential revenue growth in the last quarter of 2023 and stronger growth and profitability for 2024, driven by production improvements and increased output [136]. Profitability - Gross Profit for the three-month period ended September 30, 2023, increased by approximately $1,272,000, or 104%, with a Gross Margin of 21.6%, up 7.7 percentage points from 13.9% in the same period in 2022 [110]. - Operating Income for the three-month period ended September 30, 2023, was $280,000, an increase of approximately $971,000 compared to a loss of ($691,000) in the same period in 2022 [116]. - Income before income taxes for the three-month period ended September 30, 2023, was $182,000, an increase of approximately $923,000 compared to a loss of ($741,000) in the same period in 2022, driven by higher gross profit from increased volume [119]. - Loss from continuing operations for the nine-month period ended September 30, 2023, was ($3,926,000), an increase of approximately ($2,998,000) compared to a loss of ($928,000) in the same period in 2022, primarily due to significantly higher non-recurring SG&A expenses [125]. Expenses - Selling, General and Administrative (SG&A) expenses for the three-month period ended September 30, 2023, increased by approximately $301,000, or 16%, compared to the same period in 2022 [113]. - SG&A expenses for the nine-month period ended September 30, 2023, increased by approximately $1,744,000, or 29%, compared to the same period in 2022, driven by significant non-recurring expenses [114]. - The company incurred significant non-recurring SG&A expenses of approximately $1,211,000 for the nine months ended September 30, 2023, related to bank refinancing and corporate restructuring [138]. Cash Flow and Working Capital - The company used approximately $4,908,000 in cash for operating activities during the nine-month period ended September 30, 2023, compared to $147,000 in the same period in 2022, primarily due to losses from continuing operations and an increase in accounts receivable [128]. - Working capital decreased to approximately $20,795,000 as of September 30, 2023, from $29,082,000 in the same period in 2022, primarily due to cash used to fund losses and impairment charges [129]. - The new Credit Facility of $7,000,000 provides adequate working capital for operations and reinvestment, with a borrowing base increase of $3,100,000 compared to the previous line of credit [130]. Strategic Decisions - The company plans to exit the CPG business segment and focus on driving revenue growth and profitability for the servo controls business [104]. - The decision to discontinue the OKC operations, which incurred a loss of $1,894,000 for the nine months ended September 30, 2023, will allow the company to focus on its core business and enhance shareholder value [141]. Challenges and Risks - Supply chain challenges and cost inflation are expected to continue impacting operations through the remainder of 2023 [102]. - Interest expense increased by approximately $48,000, or 98%, for the three-month period ended September 30, 2023, compared to the same period in 2022, primarily due to higher interest rates and advances on the line of credit [118]. Internal Controls and Compliance - The Company identified material weaknesses in internal controls over financial reporting for the years ended December 31, 2021, and 2022 [148]. - Remediation efforts began in 2021 and are expected to be completed by December 31, 2023 [148]. - A comprehensive technology assessment by a third party is part of the remediation plan [148]. - The Company believes that the condensed consolidated financial statements fairly present its financial position in accordance with U.S. GAAP [149]. Tax Assets - The company recorded a full valuation allowance against net deferred tax assets of approximately $3,394,000 as of September 30, 2023, resulting in no deferred tax assets on the balance sheet [122].
Servotronics(SVT) - 2023 Q3 - Quarterly Report