UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to Not Applicable
Commission file number: 000-000147
CRAWFORD UNITED CORPORATION
(Exact name of registrant as specified in its charter)
Ohio | 34-0288470 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
10514 Dupont Avenue, Suite 200, Cleveland, Ohio | 44108 |
(Address of principal executive offices) | (Zip Code) |
|
|
(216) 541-8060
(Registrant's telephone number(216) 243-2614, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act: None.
As of October 31, 2020, 2,552,902 shares ofJuly 21, 2021, 2,677,058 Class A Common StockShares and 771,478 shares of731,848 Class B Common StockShares were outstanding.
PART I
ITEM 1. FINANCIAL STATEMENTS
CRAWFORD UNITED CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited) | ||||||||
September 30, 2020 | December 31, 2019 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 6,730,900 | $ | 2,232,499 | ||||
Accounts receivable less allowance for doubtful accounts | 15,695,978 | 14,001,795 | ||||||
Contract assets | 4,475,330 | 2,422,379 | ||||||
Inventory less allowance for obsolete inventory | 10,229,023 | 7,678,690 | ||||||
Investments, net | 921,200 | - | ||||||
Prepaid expenses and other current assets | 565,173 | 703,002 | ||||||
Total Current Assets | 38,617,604 | 27,038,365 | ||||||
PROPERTY, PLANT AND EQUIPMENT: | ||||||||
Land and improvements | 228,872 | 228,872 | ||||||
Buildings and leasehold improvements | 1,962,341 | 1,837,009 | ||||||
Machinery and equipment | 14,166,363 | 13,950,444 | ||||||
Total property, plant and equipment | 16,357,576 | 16,016,325 | ||||||
Less accumulated depreciation | 4,898,007 | 3,622,153 | ||||||
Property, Plant and Equipment, Net | 11,459,569 | 12,394,172 | ||||||
Operating right of use asset, net | 8,548,483 | 9,224,840 | ||||||
OTHER ASSETS: | ||||||||
Goodwill | 11,505,852 | 9,791,745 | ||||||
Intangibles, net of accumulated amortization | 7,736,441 | 3,950,838 | ||||||
Other non-current assets | 106,804 | 88,046 | ||||||
Total Non-Current Other Assets | 19,349,097 | 13,830,629 | ||||||
Total Assets | $ | 77,974,753 | $ | 62,488,006 |
See accompanying notes to consolidated financial statements
CRAWFORD UNITED CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited) | ||||||||
September 30, 2020 | December 31, 2019 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Notes payable – current | $ | 3,336,787 | $ | 2,749,459 | ||||
Bank debt – current | 1,333,333 | 1,333,333 | ||||||
Leases payable - current | 704,423 | 850,664 | ||||||
Accounts payable | 9,838,637 | 6,071,522 | ||||||
Unearned revenue | 1,948,090 | 1,998,578 | ||||||
Accrued expenses | 3,201,195 | 3,281,445 | ||||||
Total Current Liabilities | 20,362,465 | 16,285,001 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Notes payable – long-term | 7,608,286 | 7,676,697 | ||||||
Bank debt – long-term | 14,380,220 | 6,376,594 | ||||||
Leases payable – long term | 8,012,267 | 8,513,448 | ||||||
Deferred income taxes | 2,207,735 | 2,207,734 | ||||||
Total Long-Term Liabilities | 32,208,508 | 24,774,473 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred shares, no par value - 1,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common shares, no par value | ||||||||
Class A common shares - 10,000,000 shares authorized, 2,591,837 and 2,576,837 shares issued at September 30, 2020 and December 31, 2019, respectively | 3,873,589 | 3,599,806 | ||||||
Class B common shares - 2,500,000 shares authorized, 954,283 shares issued at September 30, 2020 and December 31, 2019, respectively | 1,465,522 | 1,465,522 | ||||||
Contributed capital | 1,741,901 | 1,741,901 | ||||||
Treasury shares | (1,934,812 | ) | (1,905,780 | ) | ||||
Class A common shares – 39,305 and 37,208 shares held at September 30, 2020 and December 31, 2019 | ||||||||
Class B common shares – 182,435 shares held at September 30, 2020 and December 31, 2019 | ||||||||
Retained earnings | 20,257,580 | 16,527,083 | ||||||
Total Stockholders' Equity | 25,403,780 | 21,428,532 | ||||||
Total Liabilities and Stockholders' Equity | $ | 77,974,753 | $ | 62,488,006 |
(Unaudited) | ||||||||
June 30, 2021 | December 31, 2020 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 3,437,566 | $ | 6,194,276 | ||||
Accounts receivable less allowance for doubtful accounts | 17,769,648 | 12,021,692 | ||||||
Contract assets | 2,112,091 | 3,735,557 | ||||||
Inventories-less allowance for obsolete inventory | 14,581,588 | 11,030,960 | ||||||
Investments | 1,479,259 | 1,534,400 | ||||||
Prepaid expenses and other current assets | 1,153,091 | 657,496 | ||||||
Total Current Assets | 40,533,243 | 35,174,381 | ||||||
Property, plant and equipment, net | 15,361,850 | 11,290,783 | ||||||
Operating right of use asset, net | 8,284,495 | 8,856,820 | ||||||
OTHER ASSETS: | ||||||||
Goodwill | 14,183,954 | 11,505,852 | ||||||
Intangibles, net of accumulated amortization | 9,294,360 | 7,558,309 | ||||||
Other non-current assets | 97,617 | 106,638 | ||||||
Total Non-Current Other Assets | 23,575,931 | 19,170,799 | ||||||
Total Assets | $ | 87,755,519 | $ | 74,492,783 |
See accompanying notes to consolidated financial statements
CRAWFORD UNITED CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited) | ||||||||
June 30, 2021 | December 31, 2020 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: | ||||||||
Notes payable – current | 2,925,607 | 2,782,479 | ||||||
Bank debt – current | 1,333,333 | 1,333,333 | ||||||
Leases payable – current | 1,149,104 | 1,136,300 | ||||||
Accounts payable | 12,009,800 | 9,230,032 | ||||||
Unearned revenue | 1,496,361 | 820,002 | ||||||
Contingent liability - current | 750,000 | 0 | ||||||
Accrued expenses | 2,133,889 | 2,242,924 | ||||||
Total Current Liabilities | 21,798,094 | 17,545,070 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Notes payable – long-term | 5,754,221 | 5,455,717 | ||||||
Bank debt – long-term | 16,305,142 | 12,174,428 | ||||||
PPP loans | 0 | 1,453,837 | ||||||
Leases payable – long-term | 7,367,122 | 7,901,357 | ||||||
Deferred income taxes | 2,429,828 | 2,429,828 | ||||||
Contingent liability – long-term | 750,000 | 0 | ||||||
Total Long-Term Liabilities | 32,606,313 | 29,415,167 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Class A common shares - 10,000,000 shares authorized, 2,718,787 issued at June 30, 2021 and 2,595,087 issued at December 31, 2020 | 5,365,581 | 3,896,705 | ||||||
Class B common shares - 2,500,000 shares authorized, 914,283 shares issued at June 30, 2021 and 954,283 at December 31, 2020 | 1,465,522 | 1,465,522 | ||||||
Contributed capital | 1,741,901 | 1,741,901 | ||||||
Treasury shares | (1,979,085 | ) | (1,938,052 | ) | ||||
Class A common shares – 41,729 shares held at June 30, 2021 and 39,467 shares held at December 31, 2020 | ||||||||
Class B common shares – 182,435 shares held at June 30, 2021 and December 31, 2020 | ||||||||
Retained earnings | 26,757,193 | 22,366,470 | ||||||
Total Stockholders' Equity | 33,351,112 | 27,532,546 | ||||||
Total Liabilities and Stockholders' Equity | $ | 87,755,519 | $ | 74,492,783 |
See accompanying notes to consolidated financial statements
CRAWFORD UNITED CORPORATION
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Total Sales | $ | 21,277,797 | $ | 22,244,681 | $ | 65,135,959 | $ | 68,595,404 | $ | 26,449,885 | $ | 18,576,588 | $ | 50,443,889 | $ | 43,858,162 | ||||||||||||||||
Cost of Sales | 16,425,380 | 17,257,118 | 50,576,360 | 53,551,020 | 20,669,595 | 15,077,549 | 38,660,678 | 34,150,980 | ||||||||||||||||||||||||
Gross Profit | 4,852,417 | 4,987,563 | 14,559,599 | 15,044,384 | 5,780,290 | 3,499,039 | 11,783,211 | 9,707,182 | ||||||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 2,726,000 | 2,428,784 | 8,764,513 | 7,122,981 | 3,660,493 | 2,968,519 | 7,337,954 | 6,038,513 | ||||||||||||||||||||||||
Operating Income | 2,126,417 | 2,558,779 | 5,795,086 | 7,921,403 | 2,119,797 | 530,520 | 4,445,257 | 3,668,669 | ||||||||||||||||||||||||
Other (Income) and Expenses: | ||||||||||||||||||||||||||||||||
Interest charges | 208,030 | 321,994 | 740,740 | 872,646 | 238,696 | 235,289 | 457,314 | 532,710 | ||||||||||||||||||||||||
Other (income) expense, net | 13,966 | 3 | 72,933 | 1,664 | 286,644 | (12,394 | (1,275,473 | ) | 58,967 | |||||||||||||||||||||||
Total Other (Income) and Expenses | 221,996 | 321,997 | 813,673 | 874,310 | 525,340 | 222,895 | (818,159 | ) | 591,677 | |||||||||||||||||||||||
Income before Provision for Income Taxes | 1,904,421 | 2,236,782 | 4,981,413 | 7,047,093 | 1,594,457 | 307,625 | 5,263,416 | 3,076,992 | ||||||||||||||||||||||||
Provision for Income Taxes | 478,331 | 541,914 | 1,250,916 | 1,775,288 | 347,152 | 78,788 | 872,694 | 772,585 | ||||||||||||||||||||||||
Net Income | $ | 1,426,090 | $ | 1,694,868 | $ | 3,730,497 | $ | 5,271,805 | $ | 1,247,305 | $ | 228,837 | $ | 4,390,722 | $ | 2,304,407 | ||||||||||||||||
Net Income Per Common Share - Basic | $ | 0.43 | $ | 0.59 | $ | 1.12 | $ | 1.89 | $ | 0.37 | $ | 0.07 | $ | 1.29 | $ | 0.70 | ||||||||||||||||
Net Income Per Common Share - Diluted | $ | 0.43 | $ | 0.52 | $ | 1.12 | $ | 1.64 | $ | 0.37 | $ | 0.07 | $ | 1.29 | $ | 0.69 | ||||||||||||||||
Weighted Average Shares of Common Stock Outstanding | ||||||||||||||||||||||||||||||||
Basic | 3,324,380 | 2,850,958 | 3,317,864 | 2,787,845 | 3,408,906 | 3,317,665 | 3,400,917 | 3,314,573 | ||||||||||||||||||||||||
Diluted | 3,326,003 | 3,249,233 | 3,319,501 | 3,223,004 | 3,409,800 | 3,319,264 | 3,401,805 | 3,316,217 |
See accompanying notes to consolidated financial statements
CRAWFORD UNITED CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
Three Months Ended SeptemberJune 30, 20202021 and 20192020
COMMON SHARES - NO PAR VALUE | COMMON SHARES - NO PAR VALUE | |||||||||||||||||||||||||||||||||||||||||||||||
CLASS A | CLASS B | CONTRIBUTED CAPITAL | TREASURY SHARES | RETAINED EARNINGS | TOTAL | CLASS A | CLASS B | CONTRIBUTED CAPITAL | TREASURY SHARES | RETAINED EARNINGS | TOTAL | |||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | $ | 3,866,614 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,934,032 | ) | $ | 18,831,490 | $ | 23,970,715 | |||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | $ | 5,285,333 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,979,085 | ) | $ | 25,509,887 | $ | 32,023,559 | |||||||||||||||||||||||||||||||||||
Share-based compensation expense | 6,975 | - | - | - | - | 6,975 | 14,333 | 0 | 0 | 0 | 0 | 14,333 | ||||||||||||||||||||||||||||||||||||
Stock awards | - | - | - | - | - | - | 65,915 | 0 | 0 | 0 | 0 | 65,915 | ||||||||||||||||||||||||||||||||||||
Repurchase of shares | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | 1,426,090 | 1,426,090 | 0 | 0 | 0 | 0 | 1,247,305 | 1,247,305 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | $ | 3,873,589 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,934,812 | ) | $ | 20,257,580 | $ | 25,403,780 | |||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | 5,365,581 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,979,085 | ) | $ | 26,757,193 | $ | 33,351,112 |
COMMON SHARES ISSUED | TREASURY SHARES | COMMON SHARES OUTSTANDING | ||||||||||||||||||||||
CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | |||||||||||||||||||
Balance at June 30, 2020 | 2,591,837 | 954,283 | 39,305 | 182,435 | 2,552,532 | 771,848 | ||||||||||||||||||
Stock awards | - | - | - | - | - | - | ||||||||||||||||||
Repurchase of shares | - | - | - | - | - | - | ||||||||||||||||||
Balance at September 30, 2020 | 2,591,837 | 954,283 | 39,305 | 182,435 | 2,552,532 | 771,848 |
COMMON SHARES ISSUED | TREASURY SHARES | COMMON SHARES OUTSTANDING | ||||||||||||||||||||||
CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | |||||||||||||||||||
Balance at March 31, 2021 | 2,678,787 | 954,283 | 41,729 | 182,435 | 2,637,058 | 771,848 | ||||||||||||||||||
Share conversion | 40,000 | (40,000 | ) | 0 | 0 | 40,000 | (40,000 | ) | ||||||||||||||||
Balance at June 30, 2021 | 2,718,787 | 914,283 | 41,729 | 182,435 | 2,677,058 | 731,848 |
COMMON SHARES - NO PAR VALUE | COMMON SHARES - NO PAR VALUE | |||||||||||||||||||||||||||||||||||||||||||||||
CLASS A | CLASS B | CONTRIBUTED CAPITAL | TREASURY SHARES | RETAINED EARNINGS | TOTAL | CLASS A | CLASS B | CONTRIBUTED CAPITAL | TREASURY SHARES | RETAINED EARNINGS | TOTAL | |||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | $ | 2,907,342 | $ | 710,272 | $ | 1,741,901 | $ | (1,905,780 | ) | $ | 13,081,603 | $ | 16,535,338 | |||||||||||||||||||||||||||||||||||
Balance at March 31, 2020 | $ | 3,636,272 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,905,780 | ) | $ | 18,602,653 | $ | 23,540,568 | |||||||||||||||||||||||||||||||||||
Share-based compensation expense | 38,300 | - | - | - | - | 38,300 | 19,292 | 0 | 0 | 0 | 0 | 19,292 | ||||||||||||||||||||||||||||||||||||
Stock awards | - | - | - | - | - | - | 211,050 | 0 | 0 | 0 | 0 | 211,050 | ||||||||||||||||||||||||||||||||||||
Note conversion | - | 648,000 | - | - | 648,000 | |||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | - | - | - | - | - | - | 0 | 0 | 0 | (29,032 | ) | 0 | (29,032 | ) | ||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | 1,694,868 | 1,694,868 | 0 | 0 | 0 | 0 | 228,837 | 228,837 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | $ | 2,945,642 | $ | 1,358,272 | $ | 1,741,901 | $ | (1,905,780 | ) | $ | 14,776,471 | $ | 18,916,506 | |||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | $ | 3,866,614 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,934,812 | ) | $ | 18,831,490 | $ | 23,970,715 |
COMMON SHARES ISSUED | TREASURY SHARES | COMMON SHARES OUTSTANDING | ||||||||||||||||||||||
CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | |||||||||||||||||||
Balance at June 30, 2019 | 2,200,014 | 779,283 | 37,208 | 182,435 | 2,162,806 | 596,848 | ||||||||||||||||||
Stock awards | - | - | - | - | - | - | ||||||||||||||||||
Note conversion | - | 100,000 | - | - | - | 100,000 | ||||||||||||||||||
Repurchase of shares | - | - | - | - | - | - | ||||||||||||||||||
Balance at September 30, 2019 | 2,200,014 | 879,283 | 37,208 | 182,435 | 2,162,806 | 696,848 |
COMMON SHARES ISSUED | TREASURY SHARES | COMMON SHARES OUTSTANDING | ||||||||||||||||||||||
CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | |||||||||||||||||||
Balance at March 31, 2020 | 2,576,837 | 954,283 | 37,208 | 182,435 | 2,539,629 | 771,848 | ||||||||||||||||||
Stock awards | 15,000 | 0 | 0 | 0 | 15,000 | 0 | ||||||||||||||||||
Repurchase of shares | 0 | 0 | 1,727 | 0 | (1,727 | ) | 0 | |||||||||||||||||
Balance at June 30, 2020 | 2,591,837 | 954,283 | 38,935 | 182,435 | 2,552,902 | 771,848 |
CRAWFORD UNITED CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
NineSix Months Ended SeptemberJune 30, 20202021 and 20192020
COMMON SHARES - NO PAR VALUE | COMMON SHARES - NO PAR VALUE | |||||||||||||||||||||||||||||||||||||||||||||||
CLASS A | CLASS B | CONTRIBUTED CAPITAL | TREASURY SHARES | RETAINED EARNINGS | TOTAL | CLASS A | CLASS B | CONTRIBUTED CAPITAL | TREASURY SHARES | RETAINED EARNINGS | TOTAL | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | $ | 3,599,806 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,905,780 | ) | $ | 16,527,083 | $ | 21,428,532 | |||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | 3,896,705 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,938,052 | ) | $ | 22,366,470 | $ | 27,532,546 | |||||||||||||||||||||||||||||||||||
Share-based compensation expense | 62,733 | - | - | - | - | 62,733 | 30,000 | 0 | 0 | 0 | 0 | 30,000 | ||||||||||||||||||||||||||||||||||||
Stock awards | 211,050 | - | - | - | - | 211,050 | 379,876 | 0 | 0 | 0 | 0 | 379,876 | ||||||||||||||||||||||||||||||||||||
Issuance for acquisition | 1,059,000 | 0 | 0 | 0 | 0 | 1,059,000 | ||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | - | - | - | (29,032 | ) | - | (29,032 | ) | 0 | 0 | 0 | (41,033 | ) | 0 | (41,033 | ) | ||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | 3,730,497 | 3,730,497 | 0 | 0 | 0 | 0 | 4,390,722 | 4,390,722 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | $ | 3,873,589 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,934,812 | ) | $ | 20,257,580 | $ | 25,403,780 | |||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | 5,365,581 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,979,085 | ) | $ | 26,757,193 | $ | 33,351,112 |
COMMON SHARES ISSUED | TREASURY SHARES | COMMON SHARES OUTSTANDING | COMMON SHARES ISSUED | TREASURY SHARES | COMMON SHARES OUTSTANDING | |||||||||||||||||||||||||||||||||||||||||||
CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 2,576,837 | 954,283 | 37,208 | 182,435 | 2,539,629 | 771,848 | ||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 2,595,087 | 954,283 | 39,467 | 182,435 | 2,555,620 | 771,848 | ||||||||||||||||||||||||||||||||||||||||||
Stock awards | 15,000 | - | - | - | 15,000 | - | 23,700 | 0 | 0 | 0 | 23,700 | 0 | ||||||||||||||||||||||||||||||||||||
Acquisition | 60,000 | 0 | 0 | 0 | 60,000 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Stock conversion | 40,000 | (40,000 | ) | 0 | 0 | 40,000 | (40,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | - | - | 2,097 | - | (2,097 | ) | - | 0 | 0 | 2,262 | 0 | (2,262 | ) | 0 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | 2,591,837 | 954,283 | 39,305 | 182,435 | 2,552,532 | 771,848 | ||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | 2,718,787 | 914,283 | 41,729 | 182,435 | 2,677,058 | 731,848 |
COMMON SHARES - NO PAR VALUE | ||||||||||||||||||||||||
CLASS A | CLASS B | CONTRIBUTED CAPITAL | TREASURY SHARES | RETAINED EARNINGS | TOTAL | |||||||||||||||||||
Balance at December 31, 2018 | $ | 2,641,300 | $ | 710,272 | $ | 1,741,901 | $ | (1,905,780 | ) | $ | 9,577,792 | $ | 12,765,485 | |||||||||||
Share-based compensation expense | 99,642 | - | - | - | - | 99,642 | ||||||||||||||||||
Stock awards | 204,700 | - | - | - | - | 204,700 | ||||||||||||||||||
Note conversion | - | 648,000 | - | - | - | 648,000 | ||||||||||||||||||
Cumulative effect of accounting change | - | - | - | - | (73,126 | ) | (73,126 | ) | ||||||||||||||||
Net Income | - | - | - | - | 5,271,805 | 5,271,805 | ||||||||||||||||||
Balance at September 30, 2019 | $ | 2,945,642 | $ | 1,358,272 | $ | 1,741,901 | $ | (1,905,780 | ) | $ | 14,776,471 | $ | 18,916,506 |
COMMON SHARES - NO PAR VALUE | ||||||||||||||||||||||||
CLASS A | CLASS B | CONTRIBUTED CAPITAL | TREASURY SHARES | RETAINED EARNINGS | TOTAL | |||||||||||||||||||
Balance at December 31, 2019 | $ | 3,599,806 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,905,780 | ) | $ | 16,527,083 | $ | 21,428,532 | |||||||||||
Share-based compensation expense | 55,758 | 0 | 0 | 0 | 0 | 55,758 | ||||||||||||||||||
Stock awards | 211,050 | 0 | 0 | 0 | 0 | 211,050 | ||||||||||||||||||
Repurchase of shares | 0 | 0 | 0 | (29,032 | ) | 0 | (29,032 | ) | ||||||||||||||||
Net Income | 0 | 0 | 0 | 0 | 2,304,407 | 2,304,407 | ||||||||||||||||||
Balance at June 30, 2020 | $ | 3,866,614 | $ | 1,465,522 | $ | 1,741,901 | $ | (1,934,812 | ) | $ | 18,831,490 | $ | 23,970,715 |
COMMON SHARES ISSUED | TREASURY SHARES | COMMON SHARES OUTSTANDING | ||||||||||||||||||||||
CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | |||||||||||||||||||
Balance at December 31, 2018 | 2,161,014 | 779,283 | 37,208 | 182,435 | 2,123,806 | 596,848 | ||||||||||||||||||
Stock awards | 39,000 | - | - | - | 39,000 | - | ||||||||||||||||||
Note conversion | - | 100,000 | - | - | - | 100,000 | ||||||||||||||||||
Repurchase of shares | - | - | - | - | ||||||||||||||||||||
Balance at September 30, 2019 | 2,200,014 | 879,283 | 37,208 | 182,435 | 2,162,806 | 696,848 |
COMMON SHARES ISSUED | TREASURY SHARES | COMMON SHARES OUTSTANDING | ||||||||||||||||||||||
CLASS A | CLASS B | CLASS A | CLASS B | CLASS A | CLASS B | |||||||||||||||||||
Balance at December 31, 2019 | 2,576,837 | 954,283 | 37,208 | 182,435 | 2,539,629 | 771,848 | ||||||||||||||||||
Stock awards | 15,000 | 0 | 0 | 0 | 15,000 | 0 | ||||||||||||||||||
Repurchase of shares | 0 | 0 | 1,727 | 0 | (1,727 | ) | 0 | |||||||||||||||||
Balance at June 30, 2020 | 2,591,837 | 954,283 | 38,935 | 182,435 | 2,552,902 | 771,848 |
CRAWFORD UNITED CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)
Nine Months Ended September 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash Flows from Operating Activities | ||||||||||||||||
Net Income | $ | 3,730,497 | $ | 5,271,805 | $ | 4,390,722 | $ | 2,304,407 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 1,839,082 | 1,482,784 | 1,518,494 | 1,237,997 | ||||||||||||
Loss (gain) on disposal of assets | - | 4,294 | ||||||||||||||
Non-cash share-based compensation expense and stock awards | 273,783 | 304,342 | ||||||||||||||
Unrealized gain on investments in equity securities | (67,928 | ) | 0 | |||||||||||||
Forgiveness of PPP loan | (1,453,837 | ) | 0 | |||||||||||||
Non-cash share-based compensation expense | 409,876 | 266,808 | ||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Decrease (Increase) in accounts receivable | (923,095 | ) | (3,314,197 | ) | (3,186,784 | ) | 2,250,667 | |||||||||
Decrease (Increase) in inventory | 367,922 | (1,601,691 | ) | (1,781,567 | ) | (460,092 | ) | |||||||||
Decrease (Increase) in contract assets | (2,052,951 | ) | (526,024 | ) | 1,623,466 | (2,305,374 | ) | |||||||||
Decrease (Increase) in prepaid expenses & other assets | 172,468 | 196,359 | (205,280 | ) | 57,510 | |||||||||||
Increase (Decrease) in accounts payable | 3,360,686 | 1,288,002 | 1,462,832 | 2,427,507 | ||||||||||||
Increase (Decrease) in accrued expenses | (23,221 | ) | 1,008,682 | (533,593 | ) | 1,281,168 | ||||||||||
Increase (Decrease) in unearned revenue | (50,488 | ) | (3,383,550 | ) | 676,359 | (1,276,516 | ) | |||||||||
Total adjustments | 2,964,186 | (4,540,999 | ) | (1,537,962 | ) | 3,479,675 | ||||||||||
Net Cash Provided by Operating Activities | $ | 6,694,683 | $ | 730,806 | $ | 2,852,760 | $ | 5,784,082 | ||||||||
Cash Flows from Investing Activities | ||||||||||||||||
Cash paid for acquisition | (9,400,000 | ) | (50,001 | ) | (7,089,381 | ) | (9,400,000 | ) | ||||||||
Sale of equity securities | 123,069 | 0 | ||||||||||||||
Capital expenditures | (311,669 | ) | (595,227 | ) | (1,418,663 | ) | (193,059 | ) | ||||||||
Purchase of equity securities | (949,293 | ) | - | |||||||||||||
Net Cash (Used in) Investing Activities | $ | (10,660,962 | ) | $ | (645,228 | ) | $ | (8,384,975 | ) | $ | (9,593,059 | ) | ||||
Cash Flows from Financing Activities | ||||||||||||||||
Payments on notes | (4,614,303 | ) | (909,457 | ) | (1,287,456 | ) | (808,850 | ) | ||||||||
Borrowings on notes | 5,133,220 | - | 0 | 1,453,837 | ||||||||||||
Payments on bank debt | (3,760,415 | ) | (2,870,999 | ) | (3,630,634 | ) | (3,427,080 | ) | ||||||||
Borrowings on bank debt | 11,735,210 | 1,898,542 | 7,734,627 | 11,315,041 | ||||||||||||
Share repurchase | (29,032 | ) | - | (41,033 | ) | (29,032 | ) | |||||||||
Payments on finance lease | - | (11,203 | ) | |||||||||||||
Net Cash Provided by (Used in) Financing Activities | $ | 8,464,680 | $ | (1,893,117 | ) | |||||||||||
Net Cash Provided by Financing Activities | $ | 2,775,504 | $ | 8,503,916 | ||||||||||||
Net Increase (decrease) in cash and cash equivalents | 4,498,401 | (1,807,539 | ) | (2,756,710 | ) | 4,694,939 | ||||||||||
Cash and cash equivalents at beginning of period | 2,232,499 | 5,057,626 | 6,194,276 | 2,232,499 | ||||||||||||
Cash and cash equivalents at end of period | $ | 6,730,900 | $ | 3,250,087 | $ | 3,437,566 | $ | 6,927,438 | ||||||||
Supplemental disclosures of cash flow information | ||||||||||||||||
Interest paid | $ | 600,178 | $ | 884,103 | $ | 362,353 | $ | 477,332 | ||||||||
Income Taxes paid | $ | 1,175,300 | $ | 1,507,700 | ||||||||||||
Note Conversion | $ | - | $ | 648,000 | ||||||||||||
Supplemental disclosures of noncash financing activity | ||||||||||||||||
Forgiveness of PPP loan | $ | 1,453,837 | $ | 0 | ||||||||||||
Supplemental disclosures of noncash investing activity | ||||||||||||||||
Issuance of Class A common shares in business acquisitions | $ | 1,059,000 | $ | 0 |
See accompanying notes to consolidated financial statements
CRAWFORD UNITED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)SEPTEMBERJune 30, 20202021
1.BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q10-Q and Article 8 of Regulation S-X.S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of Crawford United Corporation and its wholly-owned subsidiaries (the “Company”). Significant intercompany transactions and balances have been eliminated in the financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and ninesix months ended SeptemberJune 30, 2020 2021 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2020. 2021. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended December 31, 2019. 2020.
During the three and nine monthssix-month period ended SeptemberJune 30, 2020, 2021, there have been no changes to our significant accounting policies.
Reclassifications
In Certain prior year amounts were reclassified to conform to the current year presentation. The reclassifications have no effect on the financial position or results of operations reported as of and for the periods presented.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s Summary of Significant Accounting Policies is provided with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended December 31, 2019.2020.
Recently AdoptedNew Accounting StandardsNot Yet Adopted
In January 2017, FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The standard, which should be applied prospectively, is effective for fiscal years and interim periods within those years beginning on or after December 31, 2022, as deferred. Early adoption is permitted. The Company adopted this standard on January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,2016-13, Financial Instruments-Credit Losses. The standard requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This standard iswill be effective for fiscal yearssmaller reporting companies beginning after December 15, 2022.
Fair Value of Financial Instruments
Accounting for "Financial Instruments" requires the Company to disclose estimated fair values of financial instruments. Financial instruments held by the Company include, among others, accounts receivable, accounts payable, and interim periods within those fiscal years beginning onnotes payable. The carrying amounts reported in the consolidated balance sheet for assets and liabilities qualifying as financial instruments is a reasonable estimate of fair value.
Fair Value Measurements
As defined in FASB ASC 820, "Fair Value Measurements", fair value is the price that would be received to sell an asset, or after December 31, 2022, as deferred, with early adoption permitted.paid to transfer a liability, in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Company adopted this standardutilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on January 1, 2019.the examination of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The adoptionfair value hierarchy ranks the quality and reliability of this standard did the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
* Level 1: Quoted market prices in active markets for identical assets or liabilities.
* Level 2: Inputs to the valuation methodology include: * Quoted prices for similar assets or liabilities in active markets;
* Quoted prices for identical assets or similar assets or liabilities in inactive markets;
* Inputs other than quoted prices that are observable for the asset or liability;
* Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
* Level 3: Unobservable inputs that are not have a material impact on our consolidated financial statements. corroborated by market data.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Stock: The stock market value is based on valuation of market quotes from independent active market sources, and is considered a level 1 investment.
3.ACCOUNTS RECEIVABLE
The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The reserve for doubtful accounts was $20,283$17,759 and $18,325$19,973 at SeptemberJune 30, 2020 2021 and December 31, 2019, 2020, respectively.
4.INVENTORY
Inventory is valued at the lower of cost (first-in, first-out)(first-in, first-out) or net realizable value and consists of:
September 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
Raw materials and component parts | $ | 3,038,993 | $ | 2,945,427 | $ | 3,994,065 | $ | 3,897,133 | ||||||||
Work-in-process | 3,403,158 | 2,800,699 | 4,445,012 | 3,449,252 | ||||||||||||
Finished products | 4,037,811 | 2,183,170 | 6,523,181 | 3,999,920 | ||||||||||||
Total inventory | $ | 10,479,962 | 7,929,296 | $ | 14,962,258 | $ | 11,346,305 | |||||||||
Less: inventory reserves | 250,939 | 250,606 | 380,670 | 315,345 | ||||||||||||
Net inventory | $ | 10,229,023 | $ | 7,678,690 | $ | 14,581,588 | $ | 11,030,960 |
5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
For the identified reporting units, a Step 1 impairment test was performed as of December 31, 2020 using an income approach based on management’s determination of the prospective financial information, with consideration given to the existing uncertainty in the global economy and aerospace and defense industry, particularly the commercial sector. The results of this test indicated the fair value exceeded carrying value for all reporting units tested. As a result of the impairment testing performed as of December 31, 2020, no indefinite-lived intangible assets or goodwill was determined to be impaired. Management updated their assessment during the second quarter of fiscal 2021 and validated the assumptions used in the analyses performed as of December 31, 2020 and determined that the resulting conclusions remained appropriate as of June 30, 2021.
Intangible assets relate to the purchase of businesses. Goodwill represents the excess of cost over the fair value of identifiable assets acquired. Goodwill is not amortized but is reviewed on an annual basis for impairment. Amortization of intangibles is being amortized on a straight-line basis over period ranging from one year to 15 years. Intangible assets are as follows:
September 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
Customer list intangibles | $ | 7,700,000 | $ | 4,970,000 | $ | 8,741,000 | $ | 7,700,000 | ||||||||
Non-compete agreements | 200,000 | 200,000 | 200,000 | 200,000 | ||||||||||||
Trademarks | 1,930,000 | 340,000 | 3,092,000 | 1,930,000 | ||||||||||||
Total intangible assets | 9,830,000 | 5,510,000 | 12,033,000 | 9,830,000 | ||||||||||||
Less: accumulated amortization | 2,093,559 | 1,559,162 | 2,738,640 | 2,271,691 | ||||||||||||
Intangible assets, net | $ | 7,736,441 | $ | 3,950,838 | $ | 9,294,360 | $ | 7,558,309 |
Amortization of intangibles assets was: $175,715$261,025 and $93,592$179,340 for the three months ended SeptemberJune 30, 2020 2021 and 2019,2020, respectively, and $534,397$466,949 and $280,774$358,682 for the ninesix months ended SeptemberJune 30, 2020 2021 and 2019,2020, respectively.
6.PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment are recorded at cost and depreciated over their useful lives. Maintenance and repair costs are expenses as incurred. Property, plant and equipment are as follows:
September 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
Land | $ | 228,872 | $ | 228,872 | $ | 228,872 | $ | 228,872 | ||||||||
Buildings and improvements | 1,962,341 | 1,837,009 | 2,740,383 | 2,061,887 | ||||||||||||
Machinery & equipment | 14,166,363 | 13,950,444 | 20,537,353 | 14,329,462 | ||||||||||||
Total property, plant & equipment | 16,357,576 | 16,016,325 | 23,506,608 | 16,620,221 | ||||||||||||
Less: accumulated depreciation | 4,898,007 | 3,622,153 | 8,144,758 | 5,329,438 | ||||||||||||
Property plant & equipment, net | $ | 11,459,569 | $ | 12,394,172 | $ | 15,361,850 | $ | 11,290,783 |
Depreciation expense was $415,101$661,628 and $378,111$425,769 for the three months ended SeptemberJune 30, 2020 2021 and 2019,2020, respectively, $1,275,854 and $1,182,876$1,170,565 and $860,453 for the ninesix months ended SeptemberJune 30, 2020 2021 and 2019,2020, respectively.
7.INVESTMENTS IN EQUITY SECURITIES
Investments in equity securities as of September 30, 2020 are summarized in the table below:
Three Months Ended September 30, | Nine Months Ended September 30, | June 30, 2021 | December 31, 2020 | |||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||
Fair value of equity securities | $ | 1,479,259 | $ | 1,534,400 | ||||||||||||||||||||
Cost basis | $ | 949,293 | $ | - | $ | 949,293 | $ | - | 826,224 | 949,293 | ||||||||||||||
Unrealized gain (loss) on equity securities | (28,093 | ) | - | (28,093 | ) | - | $ | 653,035 | $ | 585,107 | ||||||||||||||
Fair value of equity securities | $ | 921,200 | $ | - | $ | 921,200 | $ | - |
DuringUnrealized gains were $67,928 in the threefirstsix months ended September 30, 2020,of 2021 compared to $0 in the Company invested a totalsame period of $949,293last year. Unrealized losses were $0 in the firstsix months of 2021 compared to purchase 280,000 common shares$0 in the same period of Ampco-Pittsburgh Corporation.last year. Realized gains were $152,748 in the firstsix months of 2021 compared to $0 in the same period of last year. Realized losses were $0 in the firstsix months of 2021 compared to $0 in the same period of last year.
Investments by fair value level in the hierarchy as of June 30, 2021 and December 31, 2020 are as follows:
Quoted Market Prices in Attractive Markets (Level 1) | Models with Significant Observable Market Parameters (Level 2) | Unobservable Inputs that are not Corroborated by Market Data (Level 3) | Total Carrying Value in the Balance Sheet | |||||||||||||
Common stock as of June 30, 2021 | $ | 1,479,259 | $ | 0 | $ | 0 | $ | 1,479,259 | ||||||||
Common stock as of December 31, 2020 | $ | 1,534,400 | $ | 0 | $ | 0 | $ | 1,534,400 |
88.. BANK DEBT
The Company entered into a Credit Agreement on June 1, 2017 with JPMorgan Chase Bank, N.A. as lender, which was subsequently amended in connection with funding the acquisition of CAD Enterprises, Inc. (“CAD”) on July 5, 2018 (asand further amended on September 30, 2019, December 30, 2019 and March 2, 2021 (as amended, the “Credit Agreement"Agreement”). The Credit Agreement was amended on September 30, 2019 to expandMarch 2, 2021 amendment increased the maximum borrowing amount under the revolving loan amount from $12,000,000 to $20,000,000, subject to a borrowing base, and to extend the maturity of revolvingcredit facility from June 1, 2021$20,000,000 to June 1, 2024. The Credit Agreement was further amended on December 30, 2019 to eliminate the borrowing base.$30,000,000. As amended, the Credit Agreement is comprised of a revolving facility in the amount of $20,000,000$30,000,000 and a term A loan in the amount of $6,000,000. Outstanding borrowings on the term A loan are payable in consecutive monthly installments, which currently amount to installments of $111,111 per month as of September 30, 2020.month.
The revolving facility under the Credit Agreement includes a $3 million sublimit for the issuance of letters of credit thereunder. Interest for borrowings under the revolving facility accrues at a per annum rate equal to Prime Rate or LIBOR plus applicable margins of (i) 0.25%(0.25%) for Prime Rate loans and (ii) 1.75% for LIBOR loans. The maturity date of the revolving facility is June 1, 2024. Interest for borrowings under the term A loan accrues at a per annum rate equal to Prime Rate or LIBOR plus applicable margins of (i) 0.25% for Prime Rate loans and (ii) 2.25% for LIBOR loans. The maturity date of the term A loan is December 1, 2022. The Credit Agreement includes a commitment fee on the unused portion of the revolving facility of 0.25% per annum payable quarterly. The obligations of the Company and other borrowers under the Credit Agreement are secured by a blanket lien on all the assets of the Company and its subsidiaries. The Credit Agreement also includes customary representations and warranties and applicable reporting requirements and covenants. The financial covenants under the Credit Agreement include a minimum fixed charge coverage ratio, a maximum senior funded debt to EBITDA ratio and a maximum total funded debt to EBITDA ratio.
Bank debt balances consist of the following:
September 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
Term debt | $ | 3,111,111 | $ | 4,111,111 | $ | 2,111,111 | $ | 2,777,778 | ||||||||
Revolving debt | 12,708,205 | 3,722,995 | 15,687,371 | 10,825,797 | ||||||||||||
Total Bank debt | 15,819,316 | 7,834,106 | 17,798,482 | 13,603,575 | ||||||||||||
Less: current portion | 1,333,333 | 1,333,333 | 1,333,333 | 1,333,333 | ||||||||||||
Non-current bank debt | 14,485,983 | 6,500,773 | 16,465,149 | 12,270,242 | ||||||||||||
Less: unamortized debt costs | 105,763 | 124,179 | 160,007 | 95,814 | ||||||||||||
Net non-current bank debt | $ | 14,380,220 | $ | 6,376,594 | $ | 16,305,142 | $ | 12,174,428 |
The Company had $7.3$14.3 million and $16.3$9.2 million available to borrow on the revolving credit facility at SeptemberJune 30, 2020 2021 and December 31, 2019, 2020, respectively.
99.. NOTES PAYABLE
Convertible Notes Payable– Related Party
The Company converted all convertible notes payable in fiscal year 2019 and no longer is party to any agreements of this nature.
Notes Payable – Related Party
The Company has had two separate outstanding promissory notes with First Francis Company Inc. (“First Francis”), which were originally issued in July 2016 in connection with the acquisition of Federal Hose Manufacturing (“Federal Hose”) and which were amended in July 2018 in connection with acquisition of CAD. The first promissory note was issued with original principal in the amount of $2,000,000, and the second was issued with original principal in the amount of $2,768,662. The promissory notes each havehad an interest rate of 6.25% per annum, which was increased from 4.0% per annum as part of the July 2018 amendments to the Credit Agreement.
In addition,connection with the Komtek Forge acquisition, on January 15, 2021, the Company refinanced the outstanding First Francis promissory notes in the aggregate amount of $2,077,384, including accrued interest payable through the refinance date and combined this amount with an existing First Francis promissory note with original principalcarried by Komtek Forge in the amount of $2,768,662 was amended in July 2018 to provide$1,702,400 into one note for a conversion option commencing July 5, 2019 which allowscombined $3,779,784 loan due to First Francis to convertCompany, payable in quarterly installments beginning April 15, 2021. The interest rate on the promissory note, in whole in part with respect to a maximum amount of $648,000, into shares of the Company’s Class B common stockrefinanced loan remained at the price of $6.486.25% per share (subject to adjustment), subject to shareholder approval which was obtained on May 10, 2019. On July 9, 2019, First Francis exercised its option to convert $648,000 of existing indebtedness into 100,000 Class B Common Shares of the Company.annum. First Francis is owned by Edward Crawford and Matthew Crawford, who servesboth of whom serve on the Board of Directors of the Company, and Edward Crawford, who served on the Board of Directors of the Company until June 17, 2019. Company.
Notes Payable – Seller Note
Effective July 1, 2018, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of CAD. Upon the closing of the transaction, the CAD shares were transferred and assigned to the Company in consideration of the payment by the Company of an aggregate purchase price of $21 million, $12 million of which was payable in cash at closing, with the remainder paid in the form of a subordinated promissory note issued by the Company in favor of a Seller (the “Seller Note)Note”), which is subject to certain post-closing adjustments based on working capital, indebtedness and selling expenses, as specified in the Share Purchase Agreement entered into in connection with the acquisition (the “Share Purchase Agreement”). The Seller Note bears interest at a rate of four percent (4%) per annum and is payable in full no later than June 30, 2023 (the(the “Maturity Date”). The Maturity Date, with respect to any then-outstanding portion of the original principal amount which is subject to an indemnification claim by the Company (asserted in accordance with the terms of the Share Purchase Agreement) pending as of the date thereof, will be automatically extended until such time as any claim relating to such disputed amount is no longer pending, pursuant to the terms of the Seller Note and subject to additional conditions set forth therein and in the Share Purchase Agreement. The Company is not permitted to prepay any amounts due and owing under the Seller Note. Payment of the Seller Note is secured by a second-prioritysecond-priority security interest in the assets of CAD. Interest accrued on the original principal amount becomesis due and payable in arrears beginning September 30, 2018, and subsequent interest is due on the first day of each calendar quarter thereafter up to and including June 30, 2023. The Company is required to make quarterly principal payments, the amount of which will beis calculated based on a four (4) (4) year amortization schedule, beginning on September 30, 2019 and continuing on the last day of each calendar quarter thereafter up to and including the Maturity Date. The holders of the Seller Note and the Company agreed to defer the quarterly principal payment due June 30, 2020 until June 30, 2023; quarterly interest was paid on the Seller Note.
Paycheck Protection Program Notes
The Company applied for and was approved for a loan in the amount of $3,679,383 (the “PPP Loan”) on April 10, 2020 pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On May 5, 2020, the Company instructed JPMorgan to repay in full the Promissory Note pursuant to the Paycheck Protection Program under the CARES Act. On June 4, 2020, Federal Hose and CAD each entered into unsecured loans with First Federal Savings and Loan Association of Lakewood, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), in the amounts of $253,071 and $1,200,766, respectively (the “PPP Loans”). The Company received notice of forgiveness from First Federal Savings and Loan Association of Lakewood of 100% of the CAD and Federal Hose PPP loans on January 22, 2021 and January 29, 2021 respectively.
The PPP Loans each have a two-year term and bear interest at a rate of 1.00% per annum. Monthly principal and interest payments are deferred until seven months after the date of the loan, and will begin January 4, 2021, in monthly installments based on the principal balance of the PPP Loan outstanding following the deferral period and taking into consideration any remaining unforgiven portion of the PPP Loan. The PPP Loans may be prepaid at any time prior to maturity with no prepayment penalties. The loans contain events of default and other provisions customary for a loan of this type. The PPP Loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. Federal Hose and CAD each intend to use their entire respective PPP Loan amounts for qualifying expenses and to apply for forgiveness of the loans in accordance with the terms of the CARES Act. The PPP Loans may be forgivable, partially or in full, if certain conditions are met, principally based on having been disbursed for permissible purposes and on maintaining certain average levels of employment and payroll as required by the CARES Act. Federal Hose and CAD intend to use the loan proceeds only for permissible purposes, and as of September 30, 2020 have used all proceeds from the PPP Loans to retain employees and maintain payroll; however, the Company can provide no assurances that the amounts borrowed by Federal Hose and CAD under the PPP Loans will be eligible for forgiveness, in whole or in part. The PPP Loans are unsecured and guaranteed by the U.S. Small Business Administration.
Notes payable consists of the following:
September 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
In connection with the Federal Hose acquisition, the Company entered into a promissory note on July 1, 2016 for a $2,000,000 loan due to First Francis Company, payable in quarterly installments beginning October 31, 2016 | $ | 1,158,449 | $ | 1,302,776 | ||||||||||||
In connection with the Federal Hose acquisition, the Company entered into a promissory note on July 1, 2016 for a $2,000,000 loan due to First Francis Company, payable in quarterly installments beginning October 31, 2016. Refinanced on January 15, 2021. | $ | 0 | $ | 1,108,829 | ||||||||||||
In connection with the Federal Hose acquisition, the Company entered into a promissory note on July 1, 2016 for a $2,768,662 loan due to First Francis Company, payable in quarterly installments beginning October 31, 2016. | 1,020,287 | 1,248,380 | ||||||||||||||
In connection with the Federal Hose acquisition, the Company entered into a promissory note on July 1, 2016 for a $2,768,662 loan due to First Francis Company, payable in quarterly installments beginning October 31, 2016. Refinanced on January 15, 2021. | 0 | 941,867 | ||||||||||||||
In connection with the CARES Act, Federal Hose entered into a promissory note on June 4, 2020 for a $253,071 loan due to First Federal Savings and Loan Association of Lakewood, with monthly principal and interest installments to begin January 4, 2021. Any unforgiven portion of the note is payable on or before June 4, 2022. | 253,071 | - | ||||||||||||||
In connection with the Komtek Forge acquisition, the Company refinanced the outstanding First Francis promissory notes, accrued interest payable through the refinance date and the assumed First Francis promissory note into one note on January 15, 2021 for a $3,779,784 loan due to First Francis Company, payable in quarterly installments beginning April 15, 2021. | 3,617,328 | 0 | ||||||||||||||
In connection with the CARES Act, CAD entered into a promissory note on June 4, 2020 for a $1,200,766 loan due to First Federal Savings and Loan Association of Lakewood, with monthly principal and interest installment to begin January 4, 2021. Any unforgiven portion of the note is payable on or before June 4, 2022. | 1,200,766 | - | ||||||||||||||
In connection with the CARES Act, Federal Hose entered into a promissory note on June 4, 2020 for a $253,071 loan due to First Federal Savings and Loan Association of Lakewood, with monthly principal and interest installments scheduled to begin January 4, 2021. This note was fully forgiven on January 29, 2021. | 0 | 253,071 | ||||||||||||||
In connection with the CAD acquisition, the Company entered into a promissory note on July 1, 2018 for a $9,000,000 loan due to the Loudermilks, payable in quarterly installments beginning September 30, 2018. | 7,312,500 | 7,875,000 | ||||||||||||||
In connection with the CARES Act, CAD entered into a promissory note on June 4, 2020 for a $1,200,766 loan due to First Federal Savings and Loan Association of Lakewood, with monthly principal and interest installments scheduled to begin January 4, 2021. This note was fully forgiven on January 22, 2021. | 0 | 1,200,766 | ||||||||||||||
In connection with the CAD acquisition, the Company entered into a promissory note on July 1, 2018 for a $9,000,000 loan due to the Loudermilks, payable in quarterly installments beginning September 30, 2018. | 5,062,500 | 6,187,500 | ||||||||||||||
Total notes payable | 11,073,053 | 10,426,156 | 8,679,828 | 9,692,033 | ||||||||||||
Less current portion | 3,336,787 | 2,749,459 | 2,925,607 | 2,782,479 | ||||||||||||
Notes payable – non-current portion | $ | 7,608,286 | $ | 7,676,697 | $ | 5,754,221 | $ | 6,909,554 |
10.10. LEASES
On January 1, 2019, the Company adopted ASU 2016-02 “Leases (Topic 842),” a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP.
The Company has operating and finance leases for facilities, vehicles and equipment. These leases have remaining terms of 2 years to 15 years, some of which include options to extend the leases for up to 10 years.
Supplemental balance sheet information related to leases:
September 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
Operating leases: | ||||||||||||||||
Operating lease right-of-use assets, net | $ | 8,548,483 | $ | 9,224,840 | $ | 8,284,495 | $ | 8,856,820 | ||||||||
Other current liabilities | 704,423 | 850,664 | 1,149,104 | 1,136,300 | ||||||||||||
Operating lease liabilities | 8,012,267 | 8,513,448 | 7,367,122 | 7,901,357 | ||||||||||||
Total operating lease liabilities | $ | 8,716,690 | $ | 9,364,112 | $ | 8,516,226 | $ | 9,037,657 | ||||||||
Weighted Average Remaining Lease Term | ||||||||||||||||
Operating Leases (in years) | 11.0 | 11.0 | 9.7 | 9.0 | ||||||||||||
Weighted Average Discount Rate | ||||||||||||||||
Operating Leases | 5.0 | % | 5.0 | % | 5.0 | % | 5.0 | % |
11.11. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per share.
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Earnings Per Share - Basic | ||||||||||||||||||||||||||||||||
Net Income | $ | 1,426,090 | $ | 1,694,868 | $ | 3,730,497 | $ | 5,271,805 | $ | 1,247,305 | $ | 228,837 | $ | 4,390,722 | $ | 2,304,407 | ||||||||||||||||
Weighted average shares of common stock outstanding - Basic | 3,324,380 | 2,850,958 | 3,317,864 | 2,787,845 | 3,408,906 | 3,317,665 | 3,400,917 | 3,314,573 | ||||||||||||||||||||||||
Earnings Per Share - Basic | $ | 0.43 | $ | 0.59 | $ | 1.12 | $ | 1.89 | $ | 0.37 | $ | 0.07 | $ | 1.29 | $ | 0.70 | ||||||||||||||||
Earnings Per Share - Diluted | ||||||||||||||||||||||||||||||||
Weighted average shares of common stock outstanding - Basic | 3,324,380 | 2,850,958 | 3,317,864 | 2,787,845 | 3,408,906 | 3,317,665 | 3,400,917 | 3,314,573 | ||||||||||||||||||||||||
Warrants, Options and Convertible Notes | 1,623 | 398,275 | 1,637 | 435,159 | 894 | 1,599 | 888 | 1,644 | ||||||||||||||||||||||||
Weighted average shares of common stock -Diluted | 3,326,003 | 3,249,233 | 3,319,501 | 3,223,004 | 3,409,800 | 3,319,264 | 3,401,805 | 3,316,217 | ||||||||||||||||||||||||
Earnings Per Share - Diluted | $ | 0.43 | $ | 0.52 | $ | 1.12 | $ | 1.64 | $ | 0.37 | $ | 0.07 | $ | 1.29 | $ | 0.69 |
12.12. ACQUISITIONS
Effective January 2, 2020, 15, 2021, the Company completed the acquisition of all of the issued and outstanding membership interests of KT Acquisition LLC (dba Komtek Forge, “Komtek”), a Massachusetts limited liability company and supplier of highly engineered forgings for the aerospace, industrial gas turbine, medical prosthetics. alternative energy, petrochemical, and defense industries, pursuant to a Membership Interest Purchase Agreement entered into as of January 15, 2021. The Company acquired Komtek in consideration of the payment by the Company of an aggregate purchase price of $3.6 million, subject to certain post-closing adjustments based on working capital, indebtedness and selling expenses, as specified in the Membership Interest Purchase Agreement, which was comprised of cash, the issuance of 60,000 Class A common shares of the Company and the assumption of approximately $1,702,000 of specified liabilities of the seller.
Cash | $ | 75,701 | ||
Accounts Receivable | 1,502,713 | |||
Inventory | 1,595,859 | |||
Fixed Assets | 434,197 | |||
Prepaid and Other Assets | 280,258 | |||
Goodwill | 832,306 | |||
Total Assets Acquired | $ | 4,721,034 | ||
Accounts Payable | $ | 843,817 | ||
Accrued Expense | 223,909 | |||
Assumed debt | 1,753,757 | |||
Total Liabilities Assumed | $ | 2,821,483 | ||
Equity Issuance | $ | 1,059,000 | ||
Net Assets Acquired | $ | 840,551 | ||
Acquisition transaction costs incurred were: | $ | 145,900 |
Effective March 1, 2021, MTA Acquisition Company, LLC, a Delaware limited liability company (“MTA”) and indirect wholly-owned subsidiary of Crawford United Corporation, completed the acquisition of all of the membership interests of Global-Tek-Manufacturing LLC, a Puerto Rico limited liability company and specialist in machining parts from wrought, rounds, castings or extrusions and providing in house anodizing and other finishing and assembly operations and substantially all of the assets of MPI Products, Inc. (dba Marine Products International) (“MPI”)Machining Technology L.L.C., a Colorado limited liability company with CNC machining capability, pursuant to thea Membership Interest and Asset Purchase Agreement entered into by March 2, 2021 and between Crawford United Acquisition Company LLC, an Ohio limited liability companyeffective as of March 1, 2021. The stock and wholly-owned subsidiary of the Company, and MPI. Upon closing of the agreement, the assets were transferred and assigned to the CompanyMTA in consideration of a purchase price of $9.4exchange for approximately $4.9 million in cash which wasand the repayment of remaining outstanding indebtedness and transaction costs totaling approximately $1.6 million, subject to customary post-closing adjustments based on working capital.adjustments. The Purchase Agreement also includes a post-closing “earnout” that provides for up to an aggregate of $1.5 million in additional consideration to the certain sellers (up to $750,000 per year) if specified performance targets are met in the two years following closing. If earned, the additional consideration is payable in cash or, at the election of each such seller, in Company common shares up to a maximum aggregate amount of 61,475 shares.
MPI manufactures and distributes industrial hoses used by the recreational boating industry and has one operating location in Cleveland, Ohio. Purchase price was assigned to the book value of the net assets acquired with the excess over the book value assigned to intangible assets and goodwill and has been allocated to the following accounts:
Accounts Receivable | $ | 1,058,459 | ||
Inventory | 173,202 | |||
Fixed Assets | 3,426,091 | |||
Prepaid and Other Assets | 1,036 | |||
Intangibles Assets | 2,203,000 | |||
Goodwill | 1,813,598 | |||
Total Assets Acquired | $ | 8,675,386 | ||
Accounts Payable | $ | 473,119 | ||
Accrued Payroll and Other Expense | 202,780 | |||
Contingent Liability | 1,500,000 | |||
Total Liabilities Assumed | $ | 2,175,899 | ||
Net Assets Acquired | $ | 6,499,487 | ||
Acquisition transaction costs incurred were: | $ | 189,736 |
Accounts Receivable | $ | 771,088 | ||
Inventory | 2,918,255 | |||
Fixed Assets | 29,581 | |||
Prepaid and Other Assets | 53,397 | |||
Intangibles Assets | 4,320,000 | |||
Goodwill | 1,714,108 | |||
Total Assets Acquired | $ | 9,806,429 | ||
Accrued Expense | 406,429 | |||
Total Liabilities Assumed | $ | 406,429 | ||
Net Assets Acquired | $ | 9,400,000 |
On April 19, 2019, the Company, completed the acquisition of substantially all of the assets of Data Genomix, Inc., an Ohio corporation (“DG”), pursuant to the terms of an Asset Purchase Agreement entered into by and between Hickok Operating LLC, an Ohio limited liability company and wholly-owned subsidiary of the Company, and DG on the date thereof. DG is in the business of developing and commercializing marketing and data analytic technology applications.
13.13. SEGMENT AND RELATED INFORMATION
TheAs of January 1, 2021, the Company operates three reportableelected to report operations for two business segments: (1) Aerospace Components, (2)(1) Commercial Air Handling (3)Equipment, and (2) Industrial Hose.and Transportation Products. The decision to change from three to two reportable business segments was the result of a board-level discussion and was deemed appropriate given the size of the Company. The Company's management evaluates segment performance based primarily on operating income. Certain corporate costs are allocated to the segments and interest expense directly related to financing the acquisition of a business is allocated to that segment, respectively. Intangible assets are allocated to each segment and the related amortization of these assets are recorded in selling, general and administrative expenses.
Aerospace Components:The Aerospace Components segment was added July 1, 2018, when the Company purchased all of the issued and outstanding shares of capital stock of CAD Enterprises, Inc. in Phoenix, Arizona. This segment manufactures precision components primarily for customers in the aerospace industry. This segment provides complete end-to-end engineering, machining, grinding, welding, brazing, heat treat and assembly solutions. Utilizing state-of-the-art machining and welding technologies, this segment is an industry leader in providing complex components produced from nickel-based superalloys and stainless steels. Our quality certifications include ISO 9001:2015/AS9100D, as well as Nadcap accreditation for Fluorescent Penetrant Inspection (FPI), Heat Treating/Braze, Non-Conventional Machining EDM, TIG/E-Beam welding.
Commercial Air Handling:
The Commercial Air Handling segment was added June 1, 2017, when the Company purchased certain assets and assumed certain liabilities of Air Enterprises Acquisition LLC in Akron, Ohio. The acquired business, which operates under the name Air Enterprises, is an industry leader in designing, manufacturing and installing large-scale commercial, institutional, and industrial custom air handling solutions. Its customers are typically in the health care, education, pharmaceutical and industrial manufacturing markets in the United States. This segment also sells to select international markets. The custom air handling units are constructed of non-corrosive aluminum, resulting in sustainable, long-lasting, and energy efficient solutions with life expectancies of 50 years or more. These products are distributed through a network of sales representatives, based on relationships with health care networks, building contractors and engineering firms. The custom air handling equipment is designed, manufactured and installed under the brand names FactoryBilt® and SiteBilt®. FactoryBilt® air handling solutions are designed, fabricated and assembled in a vertically integrated process entirely within the Akron, Ohio facility. SiteBilt® air handling solutions are designed and fabricated in Akron, but are then crated and shipped to the field and assembled on-site.
Industrial Hose:and Transportation Products:
The Industrial Hoseand Transportation Products segment was added July 1, 2016, when the Company purchased the assets of the Federal Hose Manufacturing, LLC of Painesville, Ohio. This business segment includes the manufacture of flexible interlocking metal hoses and the distribution of silicone and hydraulic hoses. Metal hoses are sold primarily to major heavy-duty truck manufacturers and major aftermarket suppliers in North America. Metal hoses are also sold into the agricultural, industrial and petrochemical markets. Silicone hoses are distributed to a number of industries in North America, including agriculture and general industrial markets. The Company purchased all of the issued and outstanding shares of capital stock of CAD Enterprises, Inc.(“CAD”) in Phoenix, Arizona on July 1, 2018. CAD provides complete end-to-end engineering, machining, grinding, welding, brazing, heat treat and assembly solutions. Utilizing state-of-the-art machining and welding technologies, this segment is an industry leader in providing complex components produced from nickel-based superalloys and stainless steels. CAD’s quality certifications include ISO 9001:2015/AS9100D, as well as Nadcap accreditation for Fluorescent Penetrant Inspection (FPI), Heat Treating/Braze, Non-Conventional Machining EDM, TIG/E-Beam welding. The Company added the distribution of marine hose for recreational boating to this segment through the acquisition of the assets of MPI Products, Inc. (“MPI”) on January 2, 2020.MPI specialized in rubber and plastic marine hose for the recreational boating industry. MPI offers certified products that meet marine industry standards and regulations. Effective April 19, 2019, the Company, completed the acquisition of substantially all of the assets of Data Genomix, Inc., an Ohio corporation (“DG”). DG is in the business of developing and commercializing marketing and data analytic technology applications. The Company purchased all of the issued and outstanding membership interests of KT Acquisition LLC (name later changed to Komtek Forge LLC), in Worcester, Massachusetts on January 15, 2021. Komtek Forge LLC is a supplier of highly engineered forgings for the aerospace, industrial gas turbine, medical prosthetics, alternative energy, petrochemical and defense industries. The Company purchased all of the membership interests of Global-Tek-Manufacturing LLC (“Global-Tek”), in Ceiba, Puerto Rico and substantially all of the assets of Machining Technology L.L.C. (Machining Technologies), in Longmont, Colorado on March 2, 2021. Global-Tek and Machining Technologies specialize in providing customers with highly engineered manufacturing solutions, including CNC machining, anodizing, electro polishing and laser marking for customers in the defense, aerospace and medical device markets.
Corporate and Other:
Corporate costs not allocated to the threetwo primary business segments are aggregated with the results of DG, acquired on April 19, 2019.here.
Information by industry segment is set forth below:
Three Months Ended September 30, 2020 | ||||||||||||||||||||
Commercial Air Handling | Aerospace Components | Industrial Hose | Corporate and Other | Consolidated | ||||||||||||||||
Sales | $ | 10,331,592 | $ | 4,468,253 | $ | 6,137,905 | $ | 340,047 | $ | 21,277,797 | ||||||||||
Gross Profit | $ | 2,488,067 | $ | 389,624 | $ | 1,842,287 | $ | 132,439 | $ | 4,852,417 | ||||||||||
Operating Income | $ | 1,350,939 | $ | (146,903 | ) | $ | 860,076 | $ | 62,305 | $ | 2,126,417 | |||||||||
Pretax Income | $ | 1,350,939 | $ | (254,600 | ) | $ | 764,130 | $ | 43,952 | $ | 1,904,421 | |||||||||
Net Income | $ | 1,013,204 | $ | (190,950 | ) | $ | 571,747 | $ | 32,089 | $ | 1,426,090 |
Three Months Ended September 30, 2019 | ||||||||||||||||||||
Commercial Air Handling | Aerospace Components | Industrial Hose | Corporate and Other | Consolidated | ||||||||||||||||
Sales | $ | 12,878,988 | $ | 7,386,930 | $ | 1,823,950 | $ | 154,813 | $ | 22,244,681 | ||||||||||
Gross Profit | $ | 2,915,768 | $ | 1,611,656 | $ | 403,158 | $ | 56,981 | $ | 4,987,563 | ||||||||||
Operating Income | $ | 1,509,078 | $ | 1,073,389 | $ | 137,640 | $ | (161,328 | ) | $ | 2,558,779 | |||||||||
Pretax Income | $ | 1,508,945 | $ | 830,866 | $ | 69,698 | $ | (172,727 | ) | $ | 2,236,782 | |||||||||
Net Income | $ | 1,131,709 | $ | 623,151 | $ | 50,135 | $ | (110,127 | ) | $ | 1,694,868 |
Nine Months Ended September 30, 2020 | ||||||||||||||||||||
Commercial Air Handling | Aerospace Components | Industrial Hose | Corporate and Other | Consolidated | ||||||||||||||||
Sales | $ | 33,634,182 | $ | 14,311,500 | $ | 16,434,440 | $ | 755,837 | $ | 65,135,959 | ||||||||||
Gross Profit | $ | 8,429,409 | $ | 1,160,815 | $ | 4,693,465 | $ | 275,910 | $ | 14,559,599 | ||||||||||
Operating Income | $ | 4,536,190 | $ | (398,608 | ) | $ | 1,753,157 | $ | (95,653 | ) | $ | 5,795,086 | ||||||||
Pretax Income | $ | 4,511,225 | $ | (802,865 | ) | $ | 1,378,946 | $ | (105,893 | ) | $ | 4,981,413 | ||||||||
Net Income | $ | 3,383,419 | $ | (602,149 | ) | $ | 1,027,299 | $ | (78,072 | ) | $ | 3,730,497 |
Nine Months Ended September 30, 2019 | Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||
Commercial Air Handling | Aerospace Components | Industrial Hose | Corporate and Other | Consolidated | Commercial Air Handling | Industrial And Transportation Products | Corporate and Other | Consolidated | ||||||||||||||||||||||||||||
Sales | $ | 39,504,053 | $ | 22,864,710 | $ | 5,554,766 | $ | 671,875 | $ | 68,595,404 | $ | 9,972,545 | $ | 16,477,340 | $ | 0 | $ | 26,449,885 | ||||||||||||||||||
Gross Profit | $ | 9,466,810 | $ | 3,907,056 | $ | 1,521,137 | $ | 149,381 | $ | 15,044,384 | 2,030,038 | 3,750,252 | 0 | 5,780,290 | ||||||||||||||||||||||
Operating Income | $ | 5,536,744 | $ | 2,247,461 | $ | 681,632 | $ | (544,434 | ) | $ | 7,921,403 | 845,092 | 1,342,966 | (68,261 | ) | 2,119,797 | ||||||||||||||||||||
Pretax Income | $ | 5,536,121 | $ | 1,625,117 | $ | 476,711 | $ | (590,856 | ) | $ | 7,047,093 | 845,092 | 1,121,507 | (372,142 | ) | 1,594,457 | ||||||||||||||||||||
Net Income | $ | 4,152,092 | $ | 1,216,260 | $ | 352,593 | $ | (449,140 | ) | $ | 5,271,805 | 633,818 | 893,184 | (279,697 | ) | 1,247,305 |
Three Months Ended June 30, 2020 (1) | ||||||||||||||||
Commercial Air Handling | Industrial And Transportation Products | Corporate and Other | Consolidated | |||||||||||||
Sales | $ | 11,848,816 | $ | 6,727,772 | $ | 0 | $ | 18,576,588 | ||||||||
Gross Profit | 2,893,541 | 605,498 | 0 | 3,499,039 | ||||||||||||
Operating Income | 1,565,482 | (872,867 | ) | (162,095 | ) | 530,520 | ||||||||||
Pretax Income | 1,565,482 | (1,154,315 | ) | (103,542 | ) | 307,625 | ||||||||||
Net Income | 1,174,113 | (870,177 | ) | (75,099 | ) | 228,837 |
Six Months Ended June 30, 2021 | ||||||||||||||||
Commercial Air Handling | Industrial And Transportation Products | Corporate and Other | Consolidated | |||||||||||||
Sales | $ | 18,737,644 | $ | 31,706,245 | $ | 0 | $ | 50,443,889 | ||||||||
Gross Profit | 4,260,858 | 7,522,353 | 0 | 11,783,211 | ||||||||||||
Operating Income | 1,890,721 | 3,094,411 | (539,875 | ) | 4,445,257 | |||||||||||
Pretax Income | 1,890,721 | 2,693,643 | 679,052 | 5,263,416 | ||||||||||||
Net Income | 1,418,040 | 2,099,368 | 873,314 | 4,390,722 |
Six Months Ended June 30, 2020 (1) | ||||||||||||||||
Commercial Air Handling | Industrial And Transportation Products | Corporate and Other | Consolidated | |||||||||||||
Sales | $ | 23,302,590 | $ | 20,555,572 | $ | 0 | $ | 43,858,162 | ||||||||
Gross Profit | 5,941,342 | 3,765,841 | 0 | 9,707,182 | ||||||||||||
Operating Income | 3,185,251 | 541,737 | (58,319 | ) | 3,668,669 | |||||||||||
Pretax Income | 3,160,286 | (33,088 | ) | (50,206 | ) | 3,076,992 | ||||||||||
Net Income | 2,370,215 | (30,679 | ) | (35,129 | ) | 2,304,407 |
(1) | Segment information for the three and six month periods ended June 30, 2021 has been restated to reflect the change in reportable segments. |
14.14. UNCERTAINTIES
The coronavirus (COVID-19)(COVID-19) pandemic had a material adverse effect on the Company’s reported results for the three month and nine monthssix month periods ended SeptemberJune 30, 2020. 2021. The Company will continue to actively monitor the impact of the coronavirus pandemic, which is expected to negatively impact the Company’s business and results of operations for the remainder of fiscal year 20202021 and possibly beyond. The extent to which the Company’s business and operations will be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreakoutbreak; new and growing outbreaks of COVID-19 or new strains of COVID-19; actions by government authorities to contain the outbreakCOVID-19 or treat its impact, such as reimposed public health restrictions; efforts to combat COVID-19, such as vaccine development and distribution, among other things.
15.15. SUBSEQUENT EVENTS
NoneThe Company purchased the operating assets of Emergency Hydraulics LLC in Ocala, Florida on July 1, 2021 for an aggregate purchase price of approximately $0.3 million. The acquired business provides hydraulic hoses, air tank assemblies and related products to manufacturers of firefighting trucks and other emergency vehicles. The acquired business is strategically important to the Company’s growing industrial hose platform and will expand its offerings and diversify its customer base in this important market segment. The acquisition is expected to add approximately $2 million in annualized revenue to Crawford United and be immediately accretive to earnings
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following “Management’s Discussion and Analysis of Financial Condition” (“MD&A”)discussion is intended to assist in the understanding of the Company's financial position at SeptemberJune 30, 20202021 and December 31, 2019,2020, results of operations for the three month and nine monthssix month periods ended SeptemberJune 30, 20202021 and 2019,2020, and cash flows for the nine monthsthree month and six month periods ended SeptemberJune 30, 20202021 and 2019,2020, and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020. The coronavirus (COVID-19) pandemic had a material adverse effect on the Company’s reported results for the three month and nine monthssix month periods ended SeptemberJune 30, 2020.2021. The Company will continue to actively monitor the impact of the coronavirusCOVID-19 pandemic, which is expected to negatively impact the Company’s business and results of operations for the remainder of fiscal year 20202021 and possibly beyond.beyond, depending upon the pace at which pandemic-related restrictions are lifted, commercial activity resumes and the economy recovers. Many of our customers are considered “essential” and have remained operational during the pandemic, although in some cases in a limited capacity. This, together with the overall economic downturn that has resulted from the pandemic, slowed demand in the third quarterfirst and into the fourthsecond quarters of 2020.2021. Nearly all of the Company’s facilities have remained operational. While there are some restrictions to the supply of materials and products and those restrictions may continue or expand, our supply chain has remained largely intact. The extent to which the Company’s business and operations will continue to be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the pandemicpandemic; new and growing outbreaks of COVID-19 or new strains of COVID-19; actions by government authorities to contain the pandemicCOVID-19 or treat its impact, such as reimposed public health restrictions; and efforts to combat COVID-19, such as vaccine distribution, among other things.
Items Affecting the Comparability of our Financial Results
Effective January 2, 2020, the Company completed the acquisition of certain assets of MPI Products, Inc., (“MPI”). The results of this acquisition are reported under the Industrial Hose segment.
Effective April 19, 2019,The Company purchased all of the issued and outstanding membership interests of KT Acquisition LLC (name later changed to Komtek Forge LLC “Komtek”), in Worcester, Massachusetts on January 15, 2021.
The Company completedpurchased all of the acquisitionmembership interests of Global-Tek Manufacturing LLC (“Global-Tek”) in Ceiba, Puerto Rico and substantially all of the assets of Data Genomix, Inc.Machining Technology L.L.C. (“Machining Technology”), an Ohio corporation (“DG”). DG is in the business of developing and commercializing marketing and data analytic technology applications. The results of this acquisition are reported under the Corporate and Other segment.Longmont, Colorado on March 2, 2021.
Accordingly, in light of the timing of these transactions, the Company’s results for the quarterthree month and six month periods ended on SeptemberJune 30, 20202021 include the added results of operations of MPIKomtek, Global-Tek and Machining Technology in the Industrial Hoseand Transportation Products segment. Conversely, our results for the quarterthree month and six month periods ended SeptemberJune 30, 20192020 do not include the results of operationoperations of MPIKomtek, Global-Tek and Machining Technology in the Industrial Hoseand Transportation Products segment.
Results of Operations – Three Months Ended SeptemberJune 30, 20202021 and 20192020
Sales for the quarter ended SeptemberJune 30, 20202021 (“current quarter”) were $21.3increased to $26.4 million, a decreasean increase of approximately $0.9$7.9 million or 4%42.4% from sales of $22.2$18.6 million during the same quarter of the prior year. This decreaseincrease in sales was primarily attributable to lowera recovery in demand resulting from the impact of theas COVID-19 pandemic, including temporary closures by certain customers. For the current quarter, salespandemic-related restrictions loosened and commercial activity increased, 14.5% comparedin addition to the prior second quarteracquisitions of 2020, as demand recovered somewhat from the pandemic that began in the first quarter.Komtek, Global-Tek and Machining Technology.
Cost of sales for the current quarter was $16.4$20.7 million compared to $17.3$15.1 million, a decreasean increase of $0.9$5.6 million or 5%37.1% from the same quarter of the prior year. Gross profit was $4.9$5.8 million in the current quarter compared to $5.0$3.5 million, a decreasean increase of $0.1$2.3 million from the same quarter of the prior year. The decreaseincrease in cost of sales and gross profit was attributable to lower sales resulting from decreaseda recovery in demand dueas the COVID-19 pandemic eased, in addition to the COVID-19 pandemic. The Company continues to take steps to reduce costs during the quarter in response to lower sales levels, including staff reductions, shortened work weeks,acquisitions of Komtek, Global-Tek and compensation decreases for certain salaried employees.Machining Technology.
Selling, general and administrative expenses (SG&A) in the current quarter were $2.7$3.7 million, or 13.9% of sales, compared to $2.4$3.0 million, or 16.0% of sales in the samesecond quarter of the priorlast year. Selling, general and administrative expenses increased by $0.3 millionas a percentage of sales due primarily to the acquisition of MPI, which includes approximately $0.1an additional $0.6 million of intangible amortization expense. These expense increases were partially offset byas a result of the cost reduction actions taken during the quarter, as described above.acquisitions of Komtek, Global-Tek and Machining Technology.
Interest charges in the current quarter were approximately $0.2 million compared to $0.3$0.2 million in the same quarter of the prior year. The interest expense decreased due to lower average interest rates on the Company’s floating rate bank debt. Average total debt (including notes) and average interest rates for the current quarter were $26.8$27.7 million and 2.9%, compared to $20.5$25.7 million and 4.5%3.4% in the same quarterperiod of the priorlast year.
Other expense, net was $14 thousand$0.3 million in the current quarter compared to $0 thousand in$0.1 million of other expense,income, net in the same quarter of the prior year. Other (income)The increase in other expense, net was comprisedis primarily driven by a loss of rental income, gains and losses on the disposal of assets, legal settlements, acquisition expenditures, unrealized gains and losses on equity$0.2 million related to investments in marketable securities and other miscellaneous charges.$0.1 million of transaction costs as a result of the acquisitions of Komtek, Global-Tek and Machining Technology.
Income tax expense in the current quarter was $0.5$0.3 million compared to $0.5$0.1 million in the same quarter of the prior year. Tax expense inis lower than the current quarter was recorded at the Company’s historical expected effective tax rate of 25% primarily because the expected tax rate for Global-Tek in Puerto Rico is lower than 25%.
Net income in the current quarter was $1.4$1.2 million or $0.43$0.37 per diluted share as compared to the net income of $1.7$0.2 million or $0.52$0.07 per diluted share for the same quarter of the prior year. Net income in the current quarter increased 520.8% compared to the prior second quarter of 2020, as demand continued to recover somewhat from the COVID-19 pandemic, which began late in the first quarter.
Results of Operations –Nine Six Months Ended SeptemberJune 30, 20202021 and 20192020
Sales for the ninesix months ended SeptemberJune 30, 20202021 (“current year to date”) were $65.1$50.4 million, a decreasean increase of approximately $3.5$6.6 million or 5%15.0% from sales of $68.6$43.9 million during the same period of the prior year. This decreaseincrease in sales was primarily attributable to lowera recovery in demand resulting fromas COVID-19 pandemic-related restrictions loosened and commercial activity increased, in addition to the impactacquisitions of the COVID-19 pandemic, including temporary closures by certain customers.Komtek, Global-Tek and Machining Technology.
Cost of sales for the current year to date was $50.6$38.7 million compared to $53.6$34.2 million a decrease of $3.0 million or 6% fromin the same period of the prior year.year, an increase of $4.5 million or 13.2%. Gross profit was $14.6$11.8 million in the current year to date compared to $15.0$9.7 million a decrease of $0.4 million fromin the same period of the prior year.year, an increase of $2.1 million. The decreaseincrease in cost of sales and gross profit was attributable lower sales resulting from decreasedto a recovery in demand dueas the COVID-19 pandemic eased, in addition to the COVID-19 pandemic. The Company took a numberacquisitions of steps since the onset of the pandemic to reduce costs in response to lower sales levels, including staff reductions, shortened work weeks,Komtek, Global-Tek and compensation decreases for certain salaried employees.Machining Technology.
Selling, general and administrative expenses (SG&A) in the current year to date were $8.8$7.3 million, or 14.6% of sales, compared to $7.1$6.0 million, or 13.8% of sales, in the same period of the prior year. Selling, general and administrative expenses increased by $1.7$1.3 million due the acquisition of MPI, which includes approximately $0.3primarily to an additional $1.0 million of intangible amortization expense. These expense increases were partially offset by the cost reduction actions since the onsetas a result of the pandemic, as described above.acquisitions of Komtek, Global-Tek and Machining Technology.
Interest charges in the current year to date were approximately $0.7$0.5 million compared to $0.9$0.5 million in the same period of the prior year. The interest expense decreased due to lower average interest rates on the Company’s floating rate bank debt. Average total debt (including notes) and average interest rates for the current year to date were $26.7$26.9 million and 3.2%3.0%, compared to $21.1$26.2 million and 4.4%3.5% in the same period of the prior year.
Other expense,income, net was $73 thousand$1.3 million in the current year to date compared to $2 thousand$0.1 million of other expense, net in the same period of the prior year. Other (income) expense, net was comprisedThe increase in other income is primarily driven by the forgiveness in full during the first quarter of rental income, gains and losses on2021 of the disposal$1.5 million in aggregate Payroll Protection Loans (“PPP Loans”) accepted by two of assets, legal settlements, acquisition expenditures, unrealized gains and losses on equity securities and other miscellaneous charges.the Company’s subsidiaries, in accordance with the terms of the CARES Act. The forgiveness of the PPP loans is treated as income.
Income tax expense in the current year to date was $1.3$0.9 million compared to $1.8$0.8 million in the same period of the prior year. Tax expense inis lower than the current year to date is recorded at the Company’s historical expected effective tax rate of 25% primarily because the expected tax rate for Global-Tek in Puerto Rico is lower than 25%.
Net income in the current year to date was $3.7$4.4 million or $1.12$1.29 per diluted share as compared to the net income of $5.3$2.3 million or $1.64$0.69 per diluted share for the same period of the prior year.
Liquidity and Capital Resources
As described further in Note 11 to the Company’s consolidated financial statements, effective January 15, 2021, the Company completed the Komtek acquisition for a purchase price of $3.6 million, which included the assumption of $1.7 million of debt and the issuance of $1.1 million of Class A common shares.
Liquidity and Capital Resources
As described further in Note 1211 to the Company’s consolidated financial statements, effective January 2, 2020,March 1, 2021, the Company completed the MPIGlobal-Tek and Machining Technology acquisition for a purchase price of $9.4$8.0 million, cash, which is subject to certain post-closing adjustments based on working capital. capital and the achievement of future performance milestones.
The Company’s credit agreement, dated as of June 1, 2017, by and between the Company and JPMorgan Chase Bank, N.A. as lender (as amended, the “Credit Agreement”), provides availability under ourfor a revolving credit facility of $20 million, which matures June 1, 2024, of which approximately $12.7 million was outstanding at September 30, 2020. Management believesfacility. On March 2, 2021, the amount ofCompany amended its Credit Agreement to increase availability under the revolving credit facility and the terms ofto $30.0 million from $20.0 million. The amendment to the loan agreement provide theprovided additional flexibility to fund acquisitions, working capital and other strategic initiatives.
Total current assets at SeptemberJune 30, 20202021 increased to $38.6$40.5 million from $27.0$35.2 million at December 31, 2019,2020, an increase of $11.6$5.3 million. The increase in current assets is comprised of the following: an increase in cash of $4.5accounts receivable of $5.7 million; an increase in inventory of $2.5$3.6 million; an increase in accounts receivableprepaid expenses of $1.7$0.5 million; and an increase in contract assets of $2.1 million,partially offset by a decrease in prepaid expensescash of $2.8 million; a decrease in contract assets of $1.6 million; and othera decrease in investments of $0.1 million. FluctuationsThe increases in contract assets related to the Commercial Air Handling division are dependent upon progress billing milestones for contracts. Growth ininventory and accounts receivable is attributable to large billings atwere driven primarily by the Corporaterecent acquisitions of Komtek, Global-Tek and Other segment. The increase in inventory is related to the expansion of our Industrial Hose division through the acquisition of MPI. The increase in investments is related to the purchase of equity securities as described further in Note 7 to the Company’s consolidated financial statements.Machining Technology. The Company is carrying higherlower cash balances due to funding the uncertaintyrecent acquisitions of future economic conditions directly related to the COVID-19 pandemic.Komtek, Global-Tek and Machining Technology.
Total current liabilities at SeptemberJune 30, 20202021 increased to $20.4$21.8 million from $16.3$17.5 million at December 31, 2019,2020, an increase of $4.1$4.3 million. The increase in current liabilities is comprised of the following: thean increase in accounts payable of $3.8 million and the$2.8 million; an increase in notes payable of $0.6 million partially offset by the decrease in leases payable of $0.1 million, the decrease in accrued expenses of $0.1 million and the decrease$0.8 million; an increase in unearned revenue of $0.1 million. The$0.7 million; and an increase in accounts payable is primarily attributable to the Company’s extensioncontingent liabilities of payment timeframes for certain payables and expenses.$0.8 million.
Cash provided by operating activities for the ninesix months ended SeptemberJune 30, 20202021 was approximately $6.7$2.9 million, compared to cash provided by operating activities of $0.7$5.8 million in the same period a year ago. Cash provided by operating activities for the current yearsix month period is comprised of the following: net income of $3.7$4.4 million; cash provided by adjustments for non-cash items of $2.1$0.4 million; and cash provided byused in working capital adjustments of $0.9$1.9 million. The primary drivers of increaseddecreased working capital during the current yearquarter were the increase in accounts receivable of $0.9$3.2 million and the increase of inventories of $1.8 million partially offset by the decrease in contract assets of $1.6 million and an increase in accounts payable of $3.4$1.5 million.
Cash used in investing activities for the ninesix months ended SeptemberJune 30, 2020 of $10.72021 was $8.4 million, compared to cash used in investing activities of $0.6$9.6 million in the same period a year ago. The increase in cashCash used in investing activities was largely due tofor the acquisitionacquisitions of MPIKomtek, Global-Tek and Machining Technology in the Industrial Hoseand Transportation Products segment and capital expenditures in the normal course of business. The Company also invested $0.9 million to purchase 280,000 shares of Ampco-Pittsburgh Corporation (“AP”), as further described in the schedule 13D/A relating to AP filed with the SEC on October 1, 2020.
Cash provided by financing activities was approximately $8.5$2.8 million for the ninesix months ended SeptemberJune 30, 2020,2021, compared to cash usedprovided by financing activities of $1.9$8.5 million in the same period a year ago. Cash provided by financing activities for the current yearquarter was primarily related to: $11.7$7.7 million borrowings on the revolving credit facilitybank debt related to the acquisitionacquisitions of MPIKomtek, Global-Tek and $1.5 million of borrowings under the PPP Loans described below;Machining Technology; offset by cash used for $3.8$3.6 million in payments on bank debt;debt and $0.9$1.3 million in payments on notes.
The Company is actively managing its business to maintain cash flow and liquidity. As discussed elsewhere in this MD&A section, the Company has taken a number of defensive measures to enhance liquidity in response to the COVID-19 pandemic, including various expense reduction steps and PPP loans by Federal Hose and CAD. We believe that our cash flow from operations, cash balances and availability on our revolving credit facility to be sufficient to fund working capital needs and service principal and interest payments due related to the bank debt and notes payable for at least the next 12 months.payable. The Company had $7.3$14.3 million available to borrow on the revolving credit facility at SeptemberJune 30, 2020.2021. Notwithstanding the Company's expectations, if the Company's operating results decrease as the result of pressures on the business due to, for example, the impact of the COVID-19 pandemic, currency fluctuations, regulatory issues, or the Company's failure to execute its business plans, the Company may require additional financing, or may be unable to comply with its obligations under the credit facility, and its lenders could demand repayment of any amounts outstanding under the Company’s credit facility. As the company cannot predict the duration or scope of the COVID-19 pandemic and its impact on the Company’s customers and suppliers, the negative financial impact to the Company’s results cannot be reasonably estimated, but could be material.
The Company applied for and was approved for a loan in the amount of $3,679,383 on April 10, 2020 pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”); however, on May 5, 2020, the Company opted to return all of the proceeds and repay the loan in full. On June 4, 2020, each of Federal Hose and CAD entered into unsecured loans with First Federal Savings and Loan Association of Lakewood, pursuant to the Paycheck Protection Program under the CARES Act, in the amounts of $253,071 and $1,200,766, respectively (the “PPP Loans”).
The PPP Loans each have a two-year term and bear interest at a rate of 1.00% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement, and will begin in January 4, 2021, in monthly installments based on the principal balance of the PPP Loan outstanding following the deferral period and taking into consideration any portion of the PPP Loan that may be forgiven prior to that time. The PPP Loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. Federal Hose and CAD each intend to use their entire respective PPP Loan amounts for qualifying expenses and to apply for forgiveness of the loans in accordance with the terms of the CARES Act. The PPP Loans may be forgivable, partially or in full, if certain conditions are met, principally based on having been disbursed for permissible purposes and on maintaining certain average levels of employment and payroll as required by the CARES Act. Federal Hose and CAD each intend to use the loan proceeds only for permissible purposes, and to date have used all proceeds from the PPP Loans to retain employees and maintain payroll; however, the Company can provide no assurances that the amounts borrowed by Federal Hose and CAD under the PPP Loans will be eligible for forgiveness, in whole or in part. The PPP Loans are unsecured and guaranteed by the U.S. Small Business Administration. See In addition, see Note 97 of the notes to the consolidated financial statements for a further description of the PPP Loans.statements.
Due
Off-Balance Sheet Arrangements
From time to the uncertainty of future economic conditions directly related to the COVID-19 pandemic, management has decided to carry higher cash balances and levels of liquidity, rather than focus on debt reduction goals. Management believestime, the Company has adequate liquidity for debt service, working capital, capital expenditures and other strategic initiatives. However, because the Company cannot predict the duration or scope of the COVID-19 pandemic and its impact on the Company, the pandemic may adversely impact the Company’s available liquidity for debt service, working capital, or cause delay or curtailment of the Company’s planned capital expenditures or other strategic initiatives.
Off-Balance Sheet Arrangements
The Company has securedenters into performance and payment bonds in the amountordinary course of $8.2 million asbusiness. These bonds are secured by certain assets of the Company by the surety onuntil the Company’s completion of the requirements of certainthe commercial air handling contracts.contract. At June 30, 2021, the Company did not have any active surety bonds for which performance and payment had not been satisfied. The Company has no other off-balance sheet arrangements (as defined in Regulation S-K Item 303 paragraph (a)(4)(ii)) that have or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical AccountingPolicies
The Company’s critical accounting policies are as presented in Notes to Consolidated Financial Statements and Management’s Discuss and Analysis of Financial Condition and Results of Operations in our Annual Report Form 10-K for the year ended December 31, 2019.2020.
Forward-Looking Statements
The foregoing discussion includes forward-looking statements relating to the business of the Company. Generally, these statements can be identified by the use of words such as “guidance,” “outlook,” “believes,” “estimates,” “anticipates,” “expects,” “forecasts,” “seeks,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could,” “would” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements, or other statements made by the Company, are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors (including, but not limited to, those specified below) which are difficult to predict and, in many instances, are beyond the control of the Company. As a result, actual results of the Company could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) the Company's ability to effectively integrate acquisitions, including the acquisitionacquisitions of MPI Products, Inc. (dba Marine Products International),Komtek, Global-Tek and Machining Technology, and manage the larger operations of the combined businesses
(b) the duration and scope of the COVID-19 pandemic, the resumption of operations by the Company’s customers, loosening of public health restrictions, or an reimposed restrictions or tightening of public health restrictions which could impact the demand for the Company’s products; (c) the Company’s inability to obtain needed products, components or raw materials from its suppliers; (d) actions that governments, businesses and individuals take in response to the pandemic, including mandatory business closures and restrictions on onsite commercial interactions; (e) the impact of the pandemic and actions taken in response to the pandemic on global and regional economies and economic activity; (f) the pace of recovery when the COVID-19 pandemic subsides; (g) the Company's ability to effectively integrate acquisitions, and manage the larger operations of the combined businesses, (h) the Company's dependence upon a limited number of customers and the aerospace industry, (c)(i) the highly competitive industry in which the Company operates, which includes several competitors with greater financial resources and larger sales organizations, (d)(j) the Company's ability to capitalize on market opportunities in certain sectors, (e)(k) the Company's ability to obtain cost effective financing (f)and (l) the Company's ability to satisfy obligations under its financing arrangements, (g) statements related to the expected effects on the Company’s business of the COVID-19 pandemic, (h) the duration and scope of the COVID-19 pandemic and impact on the demand for the Company’s products, (i) actions that governments, businesses and individuals take in response to the pandemic, including mandatory business closures and restrictions on onsite commercial interactions, (j) the impact of the pandemic and actions taken in response to the pandemic on global and regional economies and economic activity, (k) the restoration of operations of the Company’s customers and suppliers, the lifting of public health measures and the pace of recovery when the COVID-19 pandemic subsides, (l) general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth, and the other risks described in “Item 1A. Risk Factors” in this Annual Report on Form 10-K and the Company’s subsequent filings with the SEC.
ITEM 3. MARKET RISK
This item is not applicable to the Company as a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
As of SeptemberJune 30, 2020,2021, an evaluation was performed, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer along with the Company's Vice President, Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Company's management, including the Chief Executive Officer along with the Company's Chief Financial Officer, concluded that the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") were effective as of SeptemberJune 30, 20202021 to ensure that information required to be disclosed by the Company in reports that it files and submits under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and (2) is accumulated and communicated to the Company's management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Company's internal controlcontrols over financial reporting during the quarter ended SeptemberJune 30, 20202021 that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.
The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes policies and procedures that (1) pertain to maintaining records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company's receipts and expenditures are being made only in accordance with authorization of the Company's management and directors, and (3) provide reasonable assurance regarding prevention or the timely detection of unauthorized acquisition, use or disposal of the company's assets that could have a material effect on the financial statements.
Management, including the Company's Chief Executive Officer along with the Company's Vice President, Finance and Chief Financial Officer, does not expect that the Company's internal controls will prevent or detect all errors and all fraud. An internal control system no matter how well designed and operated can provide only reasonable, not absolute, assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, collusion of two or more people, or by management override of the control. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
At the time of filing this Quarterly Report on Form 10-Q, there were no material legal proceedings pending or threatened against the Company.
ITEM 1A. RISK FACTORS.
The COVID-19 pandemic has disrupted the company’s operations and could have a material adverse effect on the company’s business, financial condition and liquidity.
The Company’s business could be further materially and adversely affected by the outbreak of a widespread health epidemic. The present coronavirus (or COVID-19) pandemic has affected the Company’s operations including government authorities imposing mandatory closures, work-from-home orders and social distancing protocols, and imposing other restrictions that could materially adversely affect the Company’s ability to maintain its operations. Specifically, the Company may experience, in the future, temporary facility closures in response to government mandates in certain jurisdictions in which the Company operates and in response to positive diagnoses for COVID-19 in certain facilities for the safety of the Company’s employees. The COVID-19 outbreak could also disrupt the Company’s supply chain and may materially adversely impact its ability to secure supplies for its facilities, which could materially adversely affect the Company’s operations. There may also be long-term effects on the Company’s customers in and the economies of affected countries.
New and changing government actions to address the COVID-19 pandemic continue to occur on a regular basis. As a result, the jurisdictions in which the Company’s products are manufactured and distributed are in varying stages of restrictions. Certain jurisdictions have had to re-establish restrictions due to a resurgence in COVID-19 cases. Additionally, although the operations of many of the company’s customers have begun to be restored or increased, such operations may be forced to be limited or closed as any new COVID-19 outbreaks occur. Even as government restrictions are lifted and economies gradually reopen, the shape of the economic recovery is uncertain and may continue to negatively impact the Company's results of operations, cash flows and financial position in subsequent quarters. Given this current level of economic and operational uncertainty over the impacts of COVID-19, the ultimate financial impact cannot be reasonably estimated at this time.
The COVID-19 pandemic and similar issues in the future could have abeen no material adverse effect on the Company’s ability to operate, results of operations, financial condition and liquidity. In addition, preventive measures the Company may voluntarily put in place, may have a material adverse effect on its business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, potential border closures and others. The Company’s suppliers and customers may also face these and other challenges, which could lead to disruption in the company’s supply chain, as well as decreased customer demand for the company’s products. These issues may also materially affect the Company’s future access to its sources of liquidity, particularly its cash flowschanges from operations, financial condition and capitalization. Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of such issues, may not be reasonably estimated due to the uncertainty of future developments.
In addition to the foregoing risk factor and the other information set forth in this report, you should carefully consider the risk factors disclosed in Part 1, Item 1A, of the Company’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the fiscal quarters ended March 31, 2020 and June 30, 2020.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
31.1 | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. |
31.2 | Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. |
32.1 | |
32.2 | |
101.INS* | Inline XBRL Instance |
101.SCH* | Inline XBRL Taxonomy Extension Schema |
101.CAL* | Inline XBRL Taxonomy Extension Calculation |
101.DEF* | Inline XBRL Extension Definition |
101.LAB* | Inline XBRL Taxonomy Extension Labels |
101.PRE* | Inline XBRL Taxonomy Extension Presentation |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
*XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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 as of the 10th day of November 2020,August 2021, thereunto duly authorized.
SIGNATURE: | TITLE |
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/s/ Brian E. Powers |
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Brian E. Powers |
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(Principal Executive Officer) | |
/s/ John P. Daly | Vice President and Chief Financial Officer |
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