hicka20190630

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

[ ] 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

Crawford United Corporation

(Exact Name of Registrant as Specified in Charter)

Ohio

0-147

34-0288470

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

10514 Dupont Avenue

Cleveland, Ohio

44108

(Address of Principal Executive Offices)

(Zip Code)

(216) 541-8060

(Registrant’s telephone number, including area code)

Hickok Incorporated

(Former Name or Former Address, if Changed Since Last Report)

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 [X] 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 [X] 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 [X]
	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 [X]

As of July 31, 2019, 2,162,806 shares of Class A Common Stock and 696,848 shares of Class B Common Stock were outstanding.

PART I

ITEM 1. FINANCIAL STATEMENTS

	(Unaudited)
	June 30, 2019		December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents	$	739,678	$	5,057,626
Accounts receivable less allowance for doubtful accounts		15,967,703		9,835,262
Costs and estimated earnings in excess of billing		2,865,403		2,083,349
Inventories-less allowance for obsolete inventory		6,164,112		5,497,982
Prepaid Expenses and other current assets		672,510		818,609
Total Current Assets		26,409,406		23,292,828

PROPERTY, PLANT AND EQUIPMENT:
Land and Improvements		228,872		257,205
Buildings and Leasehold Improvements		1,750,946		1,709,165
Machinery and Equipment		13,745,070		13,343,878
Total Property, Plant and Equipment		15,724,888		15,310,248
Less accumulated depreciation		2,782,721		2,006,133
Property, Plant and Equipment, Net		12,942,167		13,304,115

Operating Right of Use Assets, Net		9,671,445		-

OTHER ASSETS:
Goodwill		9,799,041		9,582,202
Intangibles, net of accumulated amortization		4,145,019		4,332,202
Other non-current assets		95,263		95,263
Total Non-Current Other Assets		14,039,323		14,009,667
Total Assets	$	63,062,341	$	50,606,610

	(Unaudited)
	June 30, 2019			December 31, 2018
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Convertible notes payable	$	200,000		$	200,000
Notes payable		2,694,226			1,555,663
Bank Debt		5,088,939			1,333,333
Leases payable		628,556			13,800
Accounts payable		7,316,361			5,169,819
Unearned revenue		2,579,089			5,257,797
Accrued payroll and related expenses		1,081,080			1,358,669
Accrued expenses		2,516,565			1,606,429
Accrued income taxes		467,510			360,239
Total Current Liabilities		22,572,326			16,855,749

LONG-TERM LIABILITIES:
Notes payable		9,735,846			11,086,402
Bank Debt		3,356,696			8,194,679
Deferred Income Taxes		1,701,653			1,701,653
Leases payable		9,160,482			2,642
Total Long-Term Liabilities		23,954,677			20,985,376
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, 2,162,806 and 2,123,014 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		2,907,342			2,641,300
Class B common shares - 2,500,000 shares authorized, 596,848 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		710,272			710,272
Contributed capital		1,741,901			1,741,901
Treasury shares		(1,905,780	)		(1,905,780	)
Class A common shares - 37,208 shares held at June 30, 2019 and December 31, 2018
Class B common shares – 182,435 shares held at June 30, 2019 and December 31, 2018
Retained earnings		13,081,603			9,577,792
Total Stockholders' Equity		16,535,338			12,765,485

Total Liabilities and Stockholders' Equity	$	63,062,341		$	50,606,610

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018

Total Sales	$	24,514,636	$	13,593,192	$	46,350,723	$	25,471,892
Cost of Sales		19,287,703		10,106,614		36,293,902		18,966,873
Gross Profit		5,226,933		3,486,578		10,056,821		6,505,019

Operating Expenses:
Product development costs		-		97,389		-		220,418
Selling, general and administrative expenses		2,435,380		1,572,244		4,694,197		3,824,571
Operating Income		2,791,553		1,816,945		5,362,624		2,460,030

Other (Income) and Expenses:
Interest charges		284,579		80,755		550,652		166,688
Loss on sale of business		-		1,160,574		-		1,160,574
Other (income) expense, net		25,535		49,450		1,661		108,266
Total Other (Income) and Expenses		310,114		1,290,779		552,313		1,435,528
Income before Provision for Income Taxes		2,481,439		526,166		4,810,311		1,024,502

Provision for Income Taxes		649,960		131,541		1,233,374		256,125
Net Income	$	1,831,479	$	394,625	$	3,576,937	$	768,377

Net Income Per Common Share - Basic	$	0.66	$	0.14	$	1.30	$	0.27

Net Income Per Common Share - Diluted	$	0.57	$	0.13	$	1.12	$	0.24

Weighted Average Shares of Common Stock Outstanding
Basic		2,755,916		2,721,832		2,755,764		2,880,070
Diluted		3,212,798		3,076,076		3,196,151		3,236,590

	Six Months Ended June 30,
	2019			2018

Cash Flows from Operating Activities
Net Income	$	3,576,937		$	768,377
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		976,612			654,930
Loss (gain) on sale of operations		-			1,160,574
Loss (gain) on disposal of assets		4,294			0
Non-cash share-based compensation expense		266,042			249,167
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable		(6,130,441	)		1,023,256
Decrease (Increase) in inventories		(666,130	)		(262,496	)
Decrease (Increase) in costs and estimated earnings in excess of billings		(782,054	)		(611,353	)
Decrease (Increase) in prepaid expenses & other assets		148,599			(217,071	)
Increase (Decrease) in accounts payable		1,997,175			717,836
Increase (Decrease) in accrued payroll and related expenses		(277,589	)		136,719
Increase (Decrease) in accrued expenses		944,172			(135,701	)
Increase (Decrease) in accrued income taxes		107,271			119,019
Increase (Decrease) in unearned revenue		(2,688,679	)		580,858
Total adjustments		(6,100,728	)		3,415,738

Net Cash Provided by (Used in) Operating Activities	$	(2,523,791	)	$	4,184,115

Cash Flows from Investing Activities
Capital expenditures	$	(418,934	)	$	(133,385	)
Cash paid for acquisition		(50,001	)		-

Net Cash Used in Investing Activities		(468,935	)		(133,385	)

Cash Flows from Financing Activities
Payments on notes		(223,993	)		(142,996	)
Payments on bank debt		(2,537,663	)		(4,100,000	)
Borrowings on bank debt		1,442,445			435,729
Payments on capital lease		(6,011	)		(24,007	)

Net Cash Used in Financing Activities		(1,325,222	)		(3,831,274	)

Net Increase (decrease) in cash and cash equivalents		(4,317,948	)		219,456

Cash and cash equivalents at beginning of year		5,057,626			2,444,110

Cash and cash equivalents at end of period	$	739,678		$	2,663,566

Supplemental disclosures of cash flow information
Interest Paid	$	439,572		$	232,991
Income Taxes Paid	$	1,161,400		$	119,019
Non-cash proceeds received for Class A and Class B Common Shares in exchange for the sale of certain assets	$	-		$	1,640,939

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-Q and Article 8 of Regulation 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 (formerly Hickok Incorporated) 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 six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

During the three and six months ended June 30, 2019, there were no changes to our significant accounting policies other than the adoption of the new standard for leases, as discussed in Note 2 below.

Reclassifications

Certain prior year amounts were reclassified to conform to the current year presentation. These 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-K for the year ended December 31, 2018.

Recently Adopted Accounting Standards
The Company did not incur any material impact to its results of operations due to the adoption of any new accounting standards during the periods reported. The adoption of the new standard for leases did have a material impact on consolidated balance sheets as disclosed below and in Note 9.

In February 2016, the FASB issued 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. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial application. The new standard is effective for fiscal years and interim periods within those years, beginning on or after December 15, 2018, with early adoption permitted. The adoption of this new standard on January 1, 2019 resulted in assets of $9.7 million recorded as Operating Right of Use Assets, net, and additional lease liabilities of $9.8 million. The Company also recorded an adjustment to retained earnings resulting from the cumulative effect of the change in accounting of ($0.1) million. See Note 9 for further information.

Recently Issued Accounting Standards

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 15, 2019. Early adoption is permitted. We are evaluating the impact the adoption of this standard could have on our consolidated financial statements.

In June 2016, the FASB issued ASU 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 is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2019 with early adoption permitted. We are evaluating the impact the adoption of this standard could have on our consolidated financial statements.

7. 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 (as amended, the “Credit Agreement”). As amended, the Credit Agreement is comprised of a revolving facility in the amount of $12,000,000, subject to a borrowing base (determined based on 80% of Eligible Accounts, plus 50% of Eligible Progress Billing Accounts, plus 50% of Eligible Inventory, minus Reserves, each as defined in the Credit Agreement) 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 $111,111 per month.

The revolving facility under the Credit Agreement includes a $3 million sublimit for the issuance of letters of credit thereunder. The Credit Agreement also provides for a separate credit line for borrowings of up to an aggregate of $1,000,000 for capital expenditures until July 5, 2019, at which time any outstanding capital expenditure borrowings will be converted into a term loan maturing at the earlier of five years after such conversion or the termination of the revolving credit facility. Interest for borrowings under the revolving facility accrues at a per annum rate equal to Prime Rate or LIBOR plus applicable margins of (i) 0.00% for Prime Rate loans and (ii) 2.00% for LIBOR loans. The maturity date of the revolving facility is June 1, 2020. 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:

	June 30, 2019		December 31, 2018

Term debt	$	4,777,778	$	5,444,444
Revolving debt		3,755,606		4,184,158
Total Bank debt		8,533,384		9,628,602
Less: current portion		5,088,939		1,333,333
Non-current bank debt		3,444,445		8,295,269
Less: unamortized debt costs		87,749		100,590
Net non-current bank debt	$	3,356,696	$	8,194,679

8. NOTES PAYABLE

Convertible Notes Payable - Related Party

The Company is party to a Convertible Loan Agreement (as amended, “Convertible Loan”) with Roundball, LLC (“Roundball”). The Convertible Loan provides approximately $467,000 of liquidity to meet working capital requirements of the Company and allows $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.34%. Borrowings under the Convertible Loan mature December 30, 2019. Roundball, a major shareholder of the Company, is an affiliate of Steven Rosen and Matthew Crawford, who serve on the Board of Directors of the Company.

The Convertible Loan provides Roundball with the option to elect to convert amounts outstanding under the Convertible Loan into Class A Common Shares at a conversion price of $1.43 per Class A Common Share. In December 2018, the Convertible Loan was amended to provide Roundball with the option to elect to convert, subject to shareholder approval which was obtained on May 10, 2019, a portion of the indebtedness into Class B Common Shares at a conversion price of $1.43 per Class B Common Share, up to a maximum amount of 75,000 Class B Common Shares.

The outstanding balance on the Convertible Loan as of June 30, 2019 and December 31, 2018, respectively was $200,000.

In connection with the Convertible Loan, the Company issued a warrant to Roundball to purchase, at its option, up to 100,000 shares of Class A Common Stock of the Company at an exercise price of $2.50 per share, subject to certain anti-dilution and other adjustments. The warrant expires on December 30, 2019.

Notes Payable – Related Party

The Company has 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 have an interest rate of 6.25% per annum, which was increased from 4.0% per annum as part of the July 2018 amendments. In addition, the promissory note with original principal amount of $2,768,662 was amended in July 2018 to provide for a conversion option commencing July 5, 2019 which allows First Francis to convert 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 stock at the price of $6.48 per share (subject to adjustment), subject to shareholder approval which was obtained on May 10, 2019. On May 10, 2019, the shareholders approved the issuance of shares of Class B Common Stock of the Company in connection with the conversion of indebtedness outstanding under loan agreements with First Francis Company Inc. and Roundball LLC. 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. First Francis is owned by Matthew Crawford, who serves 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.

Notes Payable – Seller Note

Effective July 1, 2018, the Company completed the acquisition of CAD for 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), 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 “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-priority security interest in the assets of the Company. Interest accrued on the original principal amount became 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 the quarter ending June 30, 2019. The Company is required to make quarterly principal payments, the amount of which will be calculated based on a four (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.

Notes payable consists of the following:

	June 30, 2019		December 31, 2018

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. The remaining balance of the note shall be payable in full on July 1, 2022.	$	1,395,332	$	1,485,061

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. The remaining balance of the note shall be payable in full on July 1, 2022.		2,034,740		2,157,004

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. No principal payments will be made until September 2019.		9,000,000		9,000,000

Total notes payable – related party		12,430,072		12,642,065
Less current portion		2,694,226		1,555,663

Notes payable – related party non-current portion	$	9,735,846	$	11,086,402

9. 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 extended the leases for up to 10 years.

Supplemental balance sheet information related to leases:

	June 30, 2019			December 31, 2018
Operating leases:
Operating lease right-of-use assets	$	9,671,445		$	-


Other current liabilities		628,556			-
Operating lease liabilities		9,160,482			-
Total operating lease liabilities	$	9,789,038		$	-


Weighted Average Remaining Lease Term
Operating Leases (in years)		11.5			-

Weighted Average Discount Rate
Operating Leases		5.0	%		-

10. EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per share.

	Three Months Ended June 30,				Six Months Ended June 30,

	2019		2018		2019		2018

Earnings Per Share - Basic
Net Income	$	1,831,479	$	394,625	$	3,576,937	$	768,377
Weighted average shares of common stock outstanding - Basic		2,755,916		2,721,832		2,755,764		2,880,070
Earnings Per Share - Basic	$	0.66	$	0.14	$	1.30	$	0.27

Earnings Per Share - Diluted
Weighted average shares of common stock outstanding - Basic		2,755,916		2,721,832		2,755,764		2,880,070
Warrants, Options and Convertible Notes		456,882		354,244		440,387		356,520
Weighted average shares of common stock -Diluted		3,212,798		3,076,076		3,196,151		3,236,590
Earnings Per Share - Diluted	$	0.57	$	0.13	$	1.12	$	0.24

11. ACQUISITIONS

Effective July 1, 2018, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of CAD, pursuant to the Share Purchase Agreement. 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 the Seller Note, which is subject to certain post-closing adjustments based on working capital, indebtedness and selling expenses, as specified in the Share Purchase Agreement.

CAD manufactures high end components for the aerospace industry and has one operating location in Phoenix, Arizona. The 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:

Cash	$	790,417
Accounts Receivable		2,221,635
Inventory		2,098,732
Fixed Assets		10,867,500
Prepaid and Other Assets		35,264
Intangibles Assets		3,000,000
Goodwill		7,326,289
Total Assets Acquired	$	26,339,837

Accounts Payable	$	1,846,247
Accrued Payroll and related expenses		224,139
Accrued Expense		518,816
Deferred Income Taxes		2,750,635
Total Liabilities Assumed	$	5,339,837

Net Assets Acquired	$	21,000,000

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 (the “Asset Purchase Agreement”) entered into by and between Hickok Operating LLC, an Ohio limited liability company and wholly-owned subsidiary of the Company (“Hickok Operating”), and DG on the date thereof. DG is in the business of developing and commercializing marketing and data analytic technology applications, which applications include, but are not limited to,topplr, anglrjobs, anglrlegal and anglrads.

13. SEGMENT AND RELATED INFORMATION

The Company operates three reportable business segments: (1) Aerospace Components, (2) Commercial Air Handling, (3) and Industrial Hose. The Company operated the Test and Measurement business segment through June 1, 2018, at which time it was sold to Hickok Waekon, LLC. 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. (“CAD”) 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:

The Industrial Hose segment was added July 1, 2016, when the Company purchased the assets of the Federal Hose Manufacturing, LLC in 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.

Test and Measurement:

The Test and Measurement segment is the legacy business that was started in 1910 when the Company was founded, and was sold June 1, 2018. This business segment included electronic testing products designed and manufactured for the automotive and trucking industries and includes indicators and gauges for the locomotive and aircraft industries. The automotive diagnostic products are sold to original equipment manufacturers and to the aftermarket under several brand names and through a variety of distribution methods. In the aircraft industry, primary customers are manufacturers of commercial, military and personal airplanes. In the locomotive industry, indicators and gauges are sold to manufacturers and servicers of railroad equipment and locomotives.

Corporate and Other:

Corporate costs not allocated to the three primary business segments are aggregated with the results of DG, acquired in April 2019.

Information by industry segment is set forth below:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018

Sales
Commercial Air Handling	$	14,880,504		$	10,884,324		$	26,625,065		$	20,000,261
Test and Measurement		228,152			924,598			502,184			1,996,445
Industrial Hose		1,933,725			1,784,270			3,730,816			3,475,186
Aerospace Components		7,457,377			-			15,477,780			-
Corporate and Other		14,878			-			14,878			-
Total Sales	$	24,514,636		$	13,593,192		$	46,350,723		$	25,471,892

Gross Profit
Commercial Air Handling	$	3,549,109		$	2,970,767		$	6,551,042		$	5,117,892
Test and Measurement		37,645			116,743			82,861			591,769
Industrial Hose		592,245			399,068			1,117,979			795,358
Aerospace Components		1,038,395			-			2,295,400			-
Corporate and Other		9,539			-			9,539			-
Total Gross Profit	$	5,226,933		$	3,486,578		$	10,056,821		$	6,505,019

Operating Income
Commercial Air Handling	$	2,244,680		$	1,780,930		$	4,027,667		$	2,661,036
Test and Measurement		37,645			(259,273	)		82,861			(369,304	)
Industrial Hose		295,701			162,141			543,989			302,153
Aerospace Components		414,464			-			1,174,074			-
Corporate and Other		(200,937	)		133,147			(465,967	)		(133,855	)
Total Operating Income	$	2,791,553		$	1,816,945		$	5,362,624		$	2,460,030

Income Before Provision for Income Taxes
Commercial Air Handling		2,244,481			1,765,374			4,027,177			2,630,579
Test and Measurement		37,645			(374,025	)		82,861			(502,974	)
Industrial Hose		214,535			123,964			407,013			224,153
Aerospace Components		231,296			-			794,253			-
Corporate and Other		(246,518	)		(989,147	)		(500,993	)		(1,327,256	)
Income Before Provision for Income Taxes	$	2,481,439		$	526,166		$	4,810,311		$	1,024,502

The following discussion is intended to assist in the understanding of the Company's financial position at June 30, 2019 and December 31, 2018, results of operations for the three and six months ended June 30, 2019 and 2018, and cash flows for the six months ended June 30, 2019 and 2018, and should be read in conjunction with the consolidated financial statements and related notes included elsewhere this Quarterly Report on Form 10-Q and with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Effective June 1, 2018, Hickok Incorporated completed the sale of certain assets comprising its Test and Measurement business segment to Hickok Waekon, LLC, an Ohio limited liability company (“Buyer”). In connection with the transaction, the Company agreed to take commercially reasonable efforts to change its name to one or more names that do not include “Hickok” or “Waekon” or any derivation thereof. On May 16, 2019, the Company changed its name to Crawford United Corporation. The Company’s common shares continue to trade over-the-counter under the new ticker symbol “CRAWA.” The name change does not affect the rights of the Company’s shareholders, creditors, customers or suppliers.

Effective July 1, 2018, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of CAD Enterprises, Inc., (“CAD”). The results of this acquisition are reported under the Aerospace Components segment.

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 results of this acquisition are reported under the Corporate and Other segment.

Accordingly, in light of the timing of these transactions, the Company’s results for the quarter ended on June 30, 2019 include operations in the Aerospace Components segment and operations of DG in the Corporate and Other segment, but not in the Test and Measurement segment. Conversely, our results for the quarter ended June 30, 2018 include operations in the Test and Measurement segment, but not in the Aerospace Components segment or operations of DG in the Corporate and Other segment.

Sales for the quarter ended June 30, 2019 (“current quarter”) increased to $24.5 million, an increase of approximately $10.9 million or 80% from sales of $13.6 million during the same quarter of the prior year. This increase in sales was primarily attributable to results from the Aerospace Components segment acquired on July 1, 2018, as well organic growth, primarily from the Commercial Air Handling segment.

Cost of sales for the current quarter was $19.3 million compared to $10.1 million in the same quarter of the prior year, an increase of $9.2 million or 91%. Gross profit was $5.2 million in the current quarter compared to $3.5 million in the same quarter of the prior year, an increase of $1.7 million. The increase in cost of sales and gross profit was attributable to the addition of the Aerospace Components segment and stronger performance in the Commercial Air Handling segment.

There were no product development expenditures during the current quarter as those expenditures historically were related to the Test and Measurement segment which was divested in June 2018. The company had $0.1 million of product and development expenditures in the second quarter of 2018.

Selling, general and administrative expenses (SG&A) in the current quarter were $2.4 million, or 10% of sales, compared to $1.6 million, or 13% of sales in the second quarter of last year. SG&A expenses increased due to higher selling expenses to support sales growth, and decreased as a percentage of sales due to the sale of the Test and Measurement segment. SG&A costs are comprised of sales and administrative salaries, commissions, professional services, intangible asset amortization, and other costs not directly associated with manufacturing of products.

Interest charges in the current quarter were approximately $0.3 million compared to $0.1 million in the same quarter of the prior year. The increase in interest expense was primarily related to the increase in outstanding debt for the quarter resulting from the acquisition of the Aerospace Components segment.

Loss on the sale of business was $1.2 million for the quarter ended June 30, 2018 and is directly related to the sale of certain assets of the Company comprising its Test and Measurement segment on June 1, 2018.

Other expense, net was $25 thousand in the current quarter compared to $49 thousand of other expense, net in the same quarter of the prior year. Other (income) expense, net was comprised of rental income, gains and losses on the disposal of assets, legal settlements, transaction costs and other miscellaneous charges.

Income tax expense in the current quarter was $0.7 million compared to $0.1 million in the same quarter of the prior year. Tax expense in the current period is recorded at the Company’s expected effective tax rate of 25%.

Net income in the current quarter was $1.8 million or $0.57 per diluted share as compared to the net income of $0.4 million or $0.13 per diluted share for the same quarter of the prior year.

Sales for the six months ended June 30, 2019 increased to $46.4 million, an increase of approximately $20.9 million or 82% from sales of $25.5 million during the same period of the prior year. This increase in sales was primarily attributable to results from the Aerospace Components segment acquired on July 1, 2018, as well organic growth, primarily from the Commercial Air Handling segment.

Cost of sales for the six months ended June 30, 2019 (“current year”) was $36.3 million compared to $19.0 million in the same period of the prior year, an increase of $17.3 million or 91%. Gross profit was $10.1 million in the current year compared to $6.5 million in the same period of the prior year, an increase of $3.5 million. The increase in cost of sales and gross profit was attributable to the addition of the Aerospace Components segment and stronger performance in the Commercial Air Handling segment.

There were no product development expenditures during the six months ended June 30, 2019 as those expenditures historically were related to the Test and Measurement segment which was divested in June 2018. The company had $0.2 million of product and development expenditures in the same period of 2018.

SG&A expenses for the six months ended June 30, 2019 were $4.7 million, or 10% of sales, compared to $3.8 million, or 15% of sales in the same period of last year. SG&A expenses increased due to higher selling expenses to support sales growth, and decreased as a percentage of sales due to the sale of the Test and Measurement segment. SG&A expenses are comprised of sales and administrative salaries, commissions, professional services, intangible asset amortization, and other costs not directly associated with manufacturing of products.

Interest expenses for the six months ended June 30, 2019 were approximately $0.6 million compared to $0.2 million in the same period of the prior year. The increase in interest expense was primarily related to the increase in outstanding debt for the quarter resulting from the acquisition of the Aerospace Components segment.

Loss on the sale of business was $1.2 million for the six months ended June 30, 2018 and is directly related to the sale of certain assets of the Company comprising its Test and Measurement segment on June 1, 2018.

Other expense, net was $1 thousand in the current quarter compared to $108 thousand of other expense, net in the same period of the prior year. Other (income) expense, net was comprised of rental income, gains and losses on the disposal of assets, legal settlements, transaction costs and other miscellaneous charges.

Income tax expense in the current year was $1.2 million compared to $0.3 million in the same period of the prior year. Tax expense in the current period is recorded at the Company’s expected effective tax rate of 25%.

Net income in the current year was $3.6 million or $1.12 per diluted share as compared to the net income of $0.8 million or $0.24 per diluted share for the same period of the prior year.

As described further in Note 11 to our consolidated financial statements, effective July 1, 2018, we completed the CAD acquisition for 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, which is subject to certain post-closing adjustments based on working capital, indebtedness and selling expenses. In connection with that transaction, we amended our credit agreement to, among other things, increase the maximum availability under our revolving credit facility to $12 million, and to increase the amount of our term loan to $6 million. We also amended our promissory notes payable to First Francis to increase the interest rate payable from 4.0% to 6.25%, and to provide First Francis with the right to convert up to $648,000 principal amount of one note into shares of Class B Common shares at a conversion price of $6.48 per share, subject to shareholder approval which was obtained on May 10, 2019. Subsequently, we also amended our outstanding convertible loan with Roundball to provide Roundball with the option to convert, subject to shareholder approval which was obtained on May 10, 2019, a portion of the indebtedness into Class B Common Shares at a conversion price of $1.43 per Class B Common Share, up to a maximum amount of 75,000 Class B Common Shares.

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.

Total current assets at June 30, 2019 increased to $26.4 million from $23.3 million at December 31, 2018, an increase of $3.1 million. The increase in current assets is comprised of the following: an increase in accounts receivable of $6.1 million, an increase in inventories of $0.7 million and an increase in costs in excess of billings of $0.8 million offset by a decrease in cash of $4.3 million. Fluctuations in accounts receivable and costs and estimated earnings in excess of billing related to the Commercial Air Handling division are dependent upon progress billing milestones for contracts.

Total current liabilities at June 30, 2019 increased to $22.6 million from $16.9 million at December 31, 2018, an increase of $5.7 million. The increase in current liabilities is comprised of the following: an increase of short term notes payable of $1.1 million, an increase of current bank debt of $3.8 million, an increase in current leases payable of $0.6 million, and an increase in accounts payable of $2.1 million, offset by a decrease in billings in excess of costs and earnings (included in unearned revenue on the balance sheet) of $2.6 million. The increase in leases payable is related to the adoption of the new lease accounting standard adopted January 1, 2019 as discussed in Note 1 and Note 9 of the notes to the consolidated financial statements. The increase in notes payable reflects required principal payments due in the next twelve months related to the CAD seller note. The increase in current bank debt reflects the reclassification of $3.8 million of borrowings under the revolving credit facility from non-current to current debt based upon the current maturity date of June 1, 2020. The company is in discussions with the its lender regarding an extension of the maturity date on the revolving credit facility, and currently expects to complete an amendment before the end of the third quarter.

Cash used in operating activities for the six months ended June 30, 2019 was approximately $2.5 million, compared to cash provided by operating activities of $4.2 million in the same period a year ago. Cash used by operating activities for the current period is comprised of the following: net income of $3.6 million and adjustments for non-cash items of $1.2 million, offset by cash used for working capital adjustments of $7.1 million. The primary uses of working capital were the increase in accounts receivable of $6.1 million and the decrease in billings in excess of costs and earnings (included in unearned revenue) of $2.7 million. Fluctuations in accounts receivable and costs and estimated earnings in excess of billing related to the Commercial Air Handling division are dependent upon the timing of achievement of progress billing milestones for contracts.

Cash used in investing activities for the six months ended June 30, 2019 of $0.5 million, compared to cash used in investing activities of $0.1 million in the same period a year ago. Cash used in investing activities was for the purchase of DG in April 2019 and capital expenditures in the normal course of business.

Cash used in financing activities was approximately $1.3 million for the six months ended June 30, 2019, compared to cash used in financing activities of $3.8 million in the same period a year ago. Cash used by financing activities for the current quarter was primarily related to: $0.2 million for payments against notes and $1.1 million for net payments against bank debt.

The Company expects positive cash flow from operations to be sufficient to fund working capital needs and service principal and interest payments due related to the bank debt and notes payable. In addition, the Company had $8.3 million available to borrow on the revolving credit facility at June 30, 2019. See Note 7 of the notes to the consolidated financial statements. Management believes the Company has adequate liquidity for debt service, working capital, capital expenditures and other strategic initiatives.

The Company purchased a performance and payment bond in the amount of $1.6 million, which is secured by certain assets of the Company, as surety on the Company's completion of the requirements of a commercial air handling contract. 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.

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, 2018.

The foregoing discussion includes forward-looking statements relating to the business of the Company. 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: the Company's ability to effectively integrate acquisitions and manage the larger operations of the combined businesses, the Company's dependence upon a limited number of customers and the aerospace industry, the highly competitive industries in which the Company operates, which includes several competitors with greater financial resources and larger sales organizations, the Company's ability to capitalize on market opportunities in certain sectors, the Company's ability to obtain cost effective financing and the Company's ability to satisfy obligations under its financing arrangements, as well as the risks described from time to time in the Company’s reports as filed with the Securities and Exchange Commission. Except to the extent required by law, the Company does not undertake and specifically declines any obligation to review or update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise.

As of June 30, 2019, 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 Vice President, Finance and 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 June 30, 2019 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 control over financial reporting during the quarter ended June 30, 2019 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

Hickok AE LLC (dba Air Enterprises), a wholly owned subsidiary of Crawford United Corporation, was named as a defendant in a lawsuit filed in Superior Court in Quebec, Canada by Carmichael Engineering Ltd. of Quebec (“Carmichael”). Carmichael’s lawsuit seeks payment of invoices for materials and services it allegedly provided to Air Enterprises prior to the Company’s acquisition of Air Enterprises and relating to a third-party cooling system. A trial date has been set for April 2020. The Company believes the claims have been improperly brought against the Company. The Company denies the allegations and will vigorously defend the claims asserted against it. The Company cannot predict the outcome of the above matters or estimate the possible loss or range of loss, if any. Management believes that the allegations are without merit and that the ultimate resolution of these matters will not have a material adverse effect on the consolidated financial condition, results of operations or cash flow of the Company.

*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.

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 14^th day of August 2019, thereunto duly authorized.

	COMMON SHARES - NO PAR VALUE
	CLASS A		CLASS B		CONTRIBUTED CAPITAL		TREASURY SHARES			RETAINED EARNINGS		TOTAL

Balance at March 31, 2018	$	2,482,534	$	710,272	$	1,741,901	$	(264,841	)	$	6,337,834	$	11,007,700
Share-based compensation expense		13,000		-		-		-			-		13,000
Proceeds from sale of business		-		-		-		(1,640,939	)				(1,640,939	)
Net Income		-		-		-		-			394,625		394,625

Balance at June 30, 2018	$	2,495,534	$	710,272	$	1,741,901	$	(1,905,780	)	$	6,732,459	$	9,774,386

	COMMON SHARES - NO PAR VALUE
	CLASS A		CLASS B		CONTRIBUTED CAPITAL		TREASURY SHARES			RETAINED EARNINGS		TOTAL

Balance at March 31, 2019	$	2,865,159	$	710,272	$	1,741,901	$	(1,905,780	)	$	11,250,124	$	14,661,676
Share-based compensation expense		42,183		-		-		-			-		42,183
Proceeds from sale of business		-		-		-		-			-		-
Net Income		-		-		-		-			18,831,479		1,831,479

Balance at June 30, 2019	$	2,907,342	$	710,272	$	1,741,901	$	(1,905,780	)	$	13,081,603	$	16,535,338

	COMMON SHARES - NO PAR VALUE
	CLASS A		CLASS B		CONTRIBUTED CAPITAL		TREASURY SHARES			RETAINED EARNINGS		TOTAL

Balance at December 31, 2017	$	2,246,367	$	710,272	$	1,741,901	$	(264,841	)	$	5,964,082	$	10,397,781
Share-based compensation expense		249,167		-		-		-			-		249,167
Proceeds from sale of business		-		-		-		(1,640,939	)		-		(1,640,939	)
Net Income		-		-		-		-			768,377		768,377

Balance at June 30, 2018	$	2,495,534	$	710,272	$	1,741,901	$	(1,905,780	)	$	6,732,459	$	9,774,386


	June 30, 2019		December 31, 2018

Raw materials and component parts	$	2,412,331	$	2,313,664
Work-in-process		2,154,000		1,209,117
Finished products		1,840,123		2,201,693
Total inventory	$	6,406,454		5,724,474
Less: inventory reserves		242,342		226,492
Net inventory	$	6,164,112	$	5,497,982

	June 30, 2019		December 31, 2018
Customer list intangibles	$	4,970,000	$	4,970,000
Non-compete agreements		200,000		200,000
Trademarks		340,000		340,000
Total intangible assets		5,510,000		5,510,000
Less: accumulated amortization		1,364,981		1,177,798
Intangible assets, net	$	4,145,019	$	4,332,202

	June 30, 2019		December 31, 2018

Land	$	228,872	$	257,205
Buildings and improvements		1,750,946		1,709,165
Machinery & equipment		13,745,070		13,343,878
Total property, plant & equipment		15,724,888		15,310,248
Less: accumulated depreciation		2,782,721		2,006,133
Property plant & equipment, net	$	12,942,167	$	13,304,115

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	Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation
101.DEF*	XBRL Extension Definition
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation


SIGNATURE:	TITLE
/s/ Brian E. Powers	Chairman, President and Chief
Brian E. Powers	Executive Officer
	(Principal Executive Officer)



/s/ Kelly J. Marek	Vice President and Chief Financial
Kelly J. Marek	Officer (Principal Accounting and Financial Officer)